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Rationalising Inefficiency: A Study of Canadian Bank Branches

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Abstract

Many studies have attempted to explain estimated inefficiency, for instance by bounded rationality, ignorance, lack of incentives or motivation etc. However, the presence of inefficiency remains in conflict with the neo-classical idea of economic rationality. This paper suggests ways in which the outcomes of Data Envelopment Analysis-type efficiency models can be rationalised. To illustrate the concepts we consider a data set of Canadian bank branches. The empirical results are encouraging since what appears to be inefficiency in some branches can be argued to be the outcome of rational decisions regarding resource allocation.

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  • Mette Asmild & Peter Bogetoft & Jens Leth Hougaard, 2006. "Rationalising Inefficiency: A Study of Canadian Bank Branches," Occasional Papers 19, Industrial Economics Division.
  • Handle: RePEc:nub:occpap:19
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    Keywords

    Banking; Data Envelopment Analysis (DEA); Rationalising Inefficiency; Resource utilization; Allocation;
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