Donal McKillop

The composite cost function and efficiency in giant Japanese banks

Abstract This study provides further empirical investigation, in the context of giant Japanese banks, of the recent claim by Pulley and Braunstein (1992, A composite cost function for multiproduct firms with an application to economies of scope in banking, Review of Economics and Statistics 74, 221–230), that their new composite model for the multiproduct cost function has important advantages over the separable quadratic, generalized translog and standard translog models. In addition to assessing the composite models relative ability in measuring global scope and scale economies, the study also extends the P-B analysis to assess measurement of product-specific scope and scale economies, pairwise cost complementarities between outputs, changes in the marginal costs of outputs and technological change. The results appear to confirm P-Bs chain. The persistent finding of scale economies for large Japanese banks is also investigated and confirmed.

Credit Unions: A Theoretical and Empirical Overview

In 2009 there were over 49,330 credit unions across 98 countries with more than 184 million members and approximately

Investigating the cost performance of UK credit unions using radial and non-radial efficiency measures

1,354 billion in assets. There is a great diversity within the credit union movement across these countries. This reflects the various economic, historic and cultural contexts within which credit unions operate. This paper traces the evolution of the credit union movement. It examines credit union objectives, and considers issues relating to efficiency, technology adoption, product diversification, merger, failure and demutualisation. The regulatory environment within which credit unions operate is also explored under the themes of interest rate regulation, common bond requirements, taxation, deposit insurance and capital regulation. The overview also considers demutualisation and the costs and benefits to credit unions of altering their organisational form.

The Achievement of Scale Efficiency in UK Universities: A Multiple-input Multiple-output Analysis

Abstract This paper examines the relative efficiency of UK credit unions. Radial and non-radial measures of input cost efficiency plus associated scale efficiency measures are computed for a selection of input output specifications. Both measures highlighted that UK credit unions have considerable scope for efficiency gains. It was mooted that the documented high levels of inefficiency may be indicative of the fact that credit unions, based on clearly defined and non-overlapping common bonds, are not in competition with each other for market share. Credit unions were also highlighted as suffering from a considerable degree of scale inefficiency with the majority of scale inefficient credit unions subject to decreasing returns to scale. The latter aspect highlights that the UK Governments goal of larger credit unions must be accompanied by greater regulatory freedom if inefficiency is to be avoided. One of the advantages of computing non-radial measures is that an insight into potential over- or under-expenditure on specific inputs can be obtained through a comparison of the non-radial measure of efficiency with the associated radial measure. Two interesting findings emerged, the first that UK credit unions over-spend on dividend payments and the second that they under-spend on labour costs.

Investigating productivity change and hospital size: a nonparametric frontier approach

This study is an empirical investigation of the cost efficiency of UK universities based on a flexible multi-product cost function model. Emphasis in the study is on the identification of optimal overall scale in UK universities and scale efficiency with respect to the individual outputs of teaching and research. The study directly employs the research ratings generated by the 1992 research assessment exercise to take explicit account of research quality. In addition, emphasis is placed on comparing the results obtained to those obtained by Glass et al (1995). This latter study was based on earlier UK university data and utilized the research ratings generated by the 1989 research assessment exercise. The key findings are: that UK universities are on average characterized by increasing returns to scale; that returns to scale in research are decreasing for the top and middle university groups and constant for the bottom group; and that on average increasing returns hold for undergraduate teaching provision.

A Cost Indirect Evaluation of Productivity Change in UK Universities

The study obtains measures of the productive efficiency of ‘larger’ and ‘smaller’ Northern Ireland hospitals during the 1986–92 pre-Trust period. The measures provide insights into how these hospitals were responding to the pressures for increased efficiency prior to Trust status. They also constitute a useful benchmark for evaluating productivity change under the post-1992 Trust status environment. A nonparametric frontier approach is used to measure productivity change and to decompose this into technical change (or shifts in the best practice frontier) and efficiency change (or change in how far a hospital is from the frontier). The latter change in efficiency is also decomposed into changes in scale efficiency, pure technical efficiency and input congestion. The findings indicate that smaller hospitals, starting from a less efficient base, achieved greater productivity gains than larger hospitals over 1986–92. For smaller hospitals, this was due to progressive shifts in the best practice frontier outweighing a substantial decline in efficiency. This decline was found to be due to a deterioration in scale efficiency over the period. The results overall support the current policy view that larger hospitals are more efficient than smaller hospitals in providing health care services.

An empirical analysis of scale and scope economies and technical change in an Irish multiproduct banking firm

The study provides an empirical analysis of productivity change in publicly-funded UK universities, against a background of government policy specifically designed to enhance the productive efficiency of universities in the provision of teaching and research. The nonparametric analysis employs a cost indirect approach to measuring productivity change, taking explicit account of the quality of research output and decomposing productivity change into technical change and efficiency change. The latter is also decomposed into changes in pure technical efficiency, scale efficiency and output congestion. Changes in size efficiency are also computed. On average, productivity declined by 4% over 1989–92, mainly as a result of regressive technical change. Evidence of biased technological change was found, with the frontier shifting out in favour of the teaching outputs and in relative to the research output.

The impact of differing operating environments on US Credit Union Performance, 1993-2001

Abstract In contrast to most empirical investigations of the efficiency of multiproduct financial institutions, which either estimate scale and scope economies with a given state of technology, or only analyse technical change in the presence of overall scale economies, this study estimates overall scale economies, product-specific scale economies and scope economies in the presence of both neutral and non-neutral technical change. Also, in contrast to most other empirical studies in this area, standard errors are computed for all relevant statistics. The findings indicate diseconomies of scope; overall diseconomies of scale; product-specific economies are decreasing for investments and increasing for loans; in addition to substantial neutral technical change, biased technical change is labour- and capital-saving and deposits-using in character.

Conversion ratios in charities in England and Wales: An investigation of economies of scale

Today US credit unions operate within a highly competitive financial market place. Set against this competitive operating environment, the present study employs stochastic frontier analysis to evaluate the performance of large credit unions (assets greater than

The Development of Credit Unions and Their Role in Tackling Financial Exclusion

50 million) over the period 1993 to 2001. Although credit unions may share a common co-operative philosophy, differences between credit unions are also apparent across a range of operational, structural and locational characteristics (environmental conditions). The impact of these different environmental influences is modelled in two ways. One assumes that environmental factors affect the efficiency with which the production process is operated, while the second assumes that the environment affects the production process itself. Net and gross cost efficiency measures are obtained for both models, with the differences between these measures for a specific credit union being viewed as the impact that environmental variables have on the inefficiency of that credit union. In addition, if it is assumed that the main environmental factors are accounted for in the modelling, then a credit unions net efficiency measure may be interpreted as a measure of managerial performance when operating in equivalent environments. The analysis revealed that different environments (the age of the credit union; the potential for expansion within the existing common bond; whether the credit union has the option of expansion through the addition of select employee groups; whether the credit union is state or federally regulated; whether insurance is provided at state or federal level; as well as regional characteristics such as per capita income and the level of unemployment) account for much of the variability in cost efficiency between credit unions and once credit unions are placed in broadly equivalent operating environments only marginal differences are apparent in their managerial performance.