General Cost Structure Analysis: Theory and Application to the Banking Industry / Edition 1

by Ziad Sarkis

Overview

The subject of General Cost Structure Analysis is the quantitative analysis of cost structures with a minimum of a priori assumptions on firm technology and on firm behaviour. The study develops an innovative line of attack building on the primal characterisation of the firm's generalised shadow cost minimisation program. The resulting Flexible Cost Model (FCM) is highly conducive to modern panel data techniques and allows for a flexible specification not only of firm technology but also of firm behaviour, as shadow prices can be made input-, time- and firm-specific. FCM is applied to a panel dataset on several hundred of the largest banking institutions in the G-5 (France, Germany, Japan, United Kingdom, United States) in the 1989-1996 period. The main empirical results are summarised. In particular, FCM provides new insights into the existence of scale economies in banking and an assessment of the extent of excess labour in the G-5 banking industries, particularly as a consequence of labour market rigidities in a context of rapidly declining technology prices. FCM also provides an evaluation of the sources of the cost advantage of American and British banks in comparison to Continental European banks.

Product Details

ISBN-13:	9780792386278
Publisher:	Springer US
Publication date:	10/31/1999
Edition description:	1999
Pages:	119
Product dimensions:	6.10(w) x 9.25(h) x 0.01(d)

Table of Contents

1 Introduction.- 2 Theoretical Framework.- 2.1 Generalised Firm Program.- 2.2 Previous Approaches.- 2.3 Flexible Cost Model (FCM).- 2.3.1 Primal Characterisation.- 2.3.2 Dual Characterisation: Globally Regular Functional Forms.- 2.3.3 Dual Characterisation: General Case.- 2.4 Comparative Statics.- 3 Empirical Modelling.- 3.1 Empirical Context and Issues.- 3.2 Output and Input Measurement.- 3.3 Dataset.- 3.4 Empirical Specification.- 3.4.1 Parametric Specification.- 3.4.2 Shastic Specification and Estimation Methodology.- 3.4.3 Dual Characterisation.- 4 Empirical Results.- 4.1 Econometric Results.- 4.1.1 Single Equation Estimation: Core Results.- 4.1.2 Single Equation Estimation: Restrictions and Extensions.- 4.1.3 System Estimation.- 4.1.4 Evidence of Output Measurement Error.- 4.2 Scale Effects.- 4.2.1 Primal Measurement.- 4.2.2 Dual Measurement.- 4.3 Capacity Utilisation Effects.- 4.3.1 Allocative Efficiency Indices.- 4.3.2 Capacity Utilisation Rates.- 4.3.3 Economic Consequences.- 4.4 Impact of Labour Market Rigidities.- 4.5 Sources of International Cost Position Differences.- 5 Conclusion.- 6 Bibliography.- 7 Appendix: Dataset Statistics.