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Technical and Allocative Efficiency in European Banking

Author

Listed:
  • Sophocles N. Brissimis

    (Bank of Greece, Economic Research Department and University of Piraeus)

  • Matthaios D. Delis

    (Athens University of Economics and Business)

  • Efthymios G. Tsionas

    (Athens University of Economics and Business)

Abstract

This paper specifies an empirical framework for estimating both technical and allocative efficiency, which is applied to a large panel of European banks over the years 1996 to 2003. Our methodology allows for self-consistent measurement of technical and allocative inefficiency, in an effort to address the issue known in the literature as the Greene problem. The results suggest that, on average, European banks exhibit constant returns to scale, that technical and allocative efficiency are close to 80% and 75% respectively, and that overall economic efficiency shows a clearly improving trend. We also show through the comparison of various estimators that models incorporating only technical efficiency tend to overestimate it.

Suggested Citation

  • Sophocles N. Brissimis & Matthaios D. Delis & Efthymios G. Tsionas, 2006. "Technical and Allocative Efficiency in European Banking," Working Papers 46, Bank of Greece.
    • Handle: RePEc:bog:wpaper:46
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    References listed on IDEAS

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    More about this item

    Keywords

    Technical and allocative efficiency; Translog cost function; Maximum likelihood; European banking;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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