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Technology and Cost Efficiency in Universal Banking A “Thick Frontier”-Analysis of the German Banking Industry

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  • Günter Lang
  • Peter Welzel

Abstract

Using 1992 data of 1490 banks covering about 40% of German banking, we specify a multi-product translog cost function and follow the “thick frontier”-approach to control for cost inefficiency when evaluating the technology of banking. Scale economies are found to exist up to a size of about 5 billion DM of total assets, with diseconomies being caused by non-operating costs. There is hardly any evidence of economies of scope. Compared to cost inefficiency external factors play a surprisingly strong role in explaining cost differences between high-cost and low-cost banks. Smaller banks turn out to be more responsive to input prices. Copyright Kluwer Academic Publishers 1998

Suggested Citation

  • Günter Lang & Peter Welzel, 1998. "Technology and Cost Efficiency in Universal Banking A “Thick Frontier”-Analysis of the German Banking Industry," Journal of Productivity Analysis, Springer, vol. 10(1), pages 63-84, July.
    • Handle: RePEc:kap:jproda:v:10:y:1998:i:1:p:63-84
    DOI: 10.1023/A:1018346332447
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