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Multiproduct Cost Functions and Scale Economies in Banking

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  • Cebenoyan, A Sinan

Abstract

This study provides new and efficient estimates of scale economies in banking. Recent criticism of the incorrect specification of homogenei ty restrictions on the translog cost functions is addressed, and correct estimations are provided. The results indicate that such misspecifications do affect measures of scale economies. The study covers 1980 to 1983 for unit and branch banks. The estimation is further enhanced by introducing factor share equations invoking Sheph ard's lemma and using an iterative Zellner procedure. The results fai l to indicate scale economies for the overall sample. Some evidence of small degrees of scale economies is observed in parts of the sample. Copyright 1988 by MIT Press.

Suggested Citation

  • Cebenoyan, A Sinan, 1988. "Multiproduct Cost Functions and Scale Economies in Banking," The Financial Review, Eastern Finance Association, vol. 23(4), pages 499-512, November.
    • Handle: RePEc:bla:finrev:v:23:y:1988:i:4:p:499-512
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    Cited by:

    1. Evren Ors, 2004. "Postmortem on the Federal Reserve's Functional Cost Analysis Program: how useful was the FCA?," Review of Financial Economics, John Wiley & Sons, vol. 13(1-2), pages 121-148.
    2. Douglas D. Evanoff & Philip R. Israilevich, 1991. "Productive efficiency in banking," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 15(Jul), pages 11-32.
    3. Rezvanian, Rasoul & Mahdian, Seyed & Elyasiani, Elyas, 1996. "Economics of scale and scope in small depository institutions: Evidence from U.S. cooperative banks," The Quarterly Review of Economics and Finance, Elsevier, vol. 36(1), pages 39-54.
    4. Ors, Evren, 2004. "Postmortem on the Federal Reserve's Functional Cost Analysis Program: how useful was the FCA?," Review of Financial Economics, Elsevier, vol. 13(1-2), pages 121-148.

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