Opening The Black Box: Finding the Source of Cost Inefficiency
نویسندگان
چکیده
Using parametric and nonparametric procedures, we identify the apparent source of cost inefficiency in banking. Unexplained inefficiencies of 20 to 25% from earlier studies are reduced to 1 to 5% when, in addition to commonly specified cost function influences, variables reflecting the external business environment and common industry indicators of "productivity" are added. While these same productivity indicators explain most of the reduction in bank operating cost over time, cost reductions during 1992-2001 were 5 times the reduction from improved efficiency. This helps explain why inefficiency appears stable over time--it is small relative to industry-wide cost changes occuring concurrently. (100 words) . JEL classification: G21, G28, E58
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