Abstract
Studies of efficiency in banking and elsewhere often impose arbitrary assumptions on the distributions of efficiency and random error in order to separate one from the other. In this study, we impose much less structure on these distributions and only assume that efficiencies are stable over time while random error tends to average out. We are able to do so by estimating firm-specific effects on costs using panel data sets of over 28,000 observations on U.S. banks from 1980 to 1989. We find results similar to the literature—X-efficiencies or managerial differences in efficiency are important in banking, while scale-efficiency differences are not. However, we also find that the distributional assumptions usually imposed in the literature are not very consistent with these data.
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Berger, A.N. “Distribution-free” estimates of efficiency in the U.S. banking industry and tests of the standard distributional assumptions. J Prod Anal 4, 261–292 (1993). https://doi.org/10.1007/BF01073413
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DOI: https://doi.org/10.1007/BF01073413