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Robust non-parametric estimation of cost efficiency with an application to banking industry

Author

Listed:
  • Galina Besstremyannaya

    () (CEFIR at New Economic School)

  • Jaak Simm

    (University of Leuven)

Abstract

The paper modifies the methodology of Simar and Wilson 2007 [J Econometrics 136] and 1998 [Manage Sci 44] to propose a new algorithm for robust estimation of cost efficiency in data envelopment analysis in terms of bias correction and estimating returns to scale. Simulation analyses with multi-input multi-output Cobb-Douglas production function with correlated outputs, and correlated technical and cost efficiency demonstrate consistency of the new algorithm both in absence and presence of environmental variables. Finally, we offer real data estimates for Japanese banking industry. An R package `rDea', developed for computations, is available from GitHub and CRAN repositary.

Suggested Citation

  • Galina Besstremyannaya & Jaak Simm, 2015. "Robust non-parametric estimation of cost efficiency with an application to banking industry," Working Papers w0217, Center for Economic and Financial Research (CEFIR).
  • Handle: RePEc:cfr:cefirw:w0217
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    data envelopment analysis; cost efficiency; bias correction; bootstrap;
    All these keywords.

    JEL classification:

    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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