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Scope economies: fixed costs, complementarity, and functional form


  • Lawrence B. Pulley
  • David B. Humphrey


Bank scope economies have been derived from either the standard or generalized (Box-Cox) multiproduct translog (or other logarithmic) functional form. Reported results have ranged from strong economies to diseconomies and are far from conclusive. The problem is functional form. An alternative composite form is shown to yield stable SCOPE results both at the usual point of evaluation and for points associated with quasi-specialized production (QSCOPE). Unstable results are obtained for the other forms. Scope economies are shown to exist for large U.S. banks in 1988 and to depend on the number of banking outputs specified. The scope estimates are also separated into their two sources - fixed-cost and cost-complementarity effects.

Suggested Citation

  • Lawrence B. Pulley & David B. Humphrey, 1991. "Scope economies: fixed costs, complementarity, and functional form," Working Paper 91-03, Federal Reserve Bank of Richmond.
  • Handle: RePEc:fip:fedrwp:91-03

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    References listed on IDEAS

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    5. Noulas, Athanasios G & Ray, Subhash C & Miller, Stephen M, 1990. "Returns to Scale and Input Substitution for Large U.S. Banks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(1), pages 94-108, February.
    6. Buono, Mark J. & Eakin, B. Kelly, 1990. "Branching restrictions and banking costs," Journal of Banking & Finance, Elsevier, vol. 14(6), pages 1151-1162, December.
    7. Gilligan, Thomas & Smirlock, Michael & Marshall, William, 1984. "Scale and scope economies in the multi-product banking firm," Journal of Monetary Economics, Elsevier, vol. 13(3), pages 393-405, May.
    8. White, Halbert, 1980. "Using Least Squares to Approximate Unknown Regression Functions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(1), pages 149-170, February.
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    11. David B. Humphrey, 1990. "Why do estimates of bank scale economies differ?," Economic Review, Federal Reserve Bank of Richmond, issue Sep, pages 38-50.
    12. Mester, Loretta J, 1987. " A Multiproduct Cost Study of Savings and Loans," Journal of Finance, American Finance Association, vol. 42(2), pages 423-445, June.
    13. Sealey, Calvin W, Jr & Lindley, James T, 1977. "Inputs, Outputs, and a Theory of Production and Cost at Depository Financial Institutions," Journal of Finance, American Finance Association, vol. 32(4), pages 1251-1266, September.
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    1. Rita Martins & Fernando Coelho & Adelino Fortunato, 2012. "Water losses and hydrographical regions influence on the cost structure of the Portuguese water industry," Journal of Productivity Analysis, Springer, vol. 38(1), pages 81-94, August.

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    Banks and banking - Costs;


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