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An Examination of Cost Subadditivity and Multiproduct Production in Large U.S. Banks


  • Hunter, William C
  • Timme, Stephen G
  • Yang, Won Keun


This paper examines the subadditivity of costs for a sample of the largest commercial banks in the U.S. We introduce into the bank production literature the grid approach developed by Evans and Heckman (1984). We estimate two models of the bank cost function--one where deposits are treated as outputs, while in the other, deposits are treated as inputs. The models are estimated using the commonly used translog and the more flexible miniflex Laurent. Viewed narrowly, the findings imply that cost complementarities are not the RAISON D'ETRE for multiproduct production in the largest commercial banks. Subadditive costs, however, are sufficient but not necessary for multiproduct production. It is quite possible for multiproduct production to be optimal when output are produced independently (Levy and Haber (1986), and Teece (1980, 1982). It is only required that inputs be shareable as opposed to joint. Copyright 1990 by Ohio State University Press.

Suggested Citation

  • Hunter, William C & Timme, Stephen G & Yang, Won Keun, 1990. "An Examination of Cost Subadditivity and Multiproduct Production in Large U.S. Banks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(4), pages 504-525, November.
  • Handle: RePEc:mcb:jmoncb:v:22:y:1990:i:4:p:504-25

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    References listed on IDEAS

    1. Olivier Jean Blanchard & Peter Diamond, 1994. "Ranking, Unemployment Duration, and Wages," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 417-434.
    2. Jackman, Richard & Layard, Richard, 1991. "Does Long-term Unemployment Reduce a Person's Chance of a Job? A Time-Series Test," Economica, London School of Economics and Political Science, vol. 58(229), pages 93-106, February.
    3. Dickens, William T, et al, 1989. "Employee Crime and the Monitoring Puzzle," Journal of Labor Economics, University of Chicago Press, vol. 7(3), pages 331-347, July.
    4. Peter A. Diamond, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Oxford University Press, vol. 49(2), pages 217-227.
    5. repec:fth:harver:1515 is not listed on IDEAS
    6. Louis N. Christofides & Andrew J. Oswald, 1992. "Real Wage Determination and Rent-Sharing in Collective Bargaining Agreements," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 985-1002.
    7. Olivier Jean Blanchard & Peter A. Diamond, 1989. "The Aggregate Matching Function," NBER Working Papers 3175, National Bureau of Economic Research, Inc.
    8. Alan B. Krueger & Lawrence H. Summers, 1986. "Reflections on the Inter-Industry Wage Structure," NBER Working Papers 1968, National Bureau of Economic Research, Inc.
    9. Nickell, Stephen J, 1990. "Unemployment: A Survey," Economic Journal, Royal Economic Society, vol. 100(401), pages 391-439, June.
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