A diagnostic test for the distribution-free efficiency estimator: an example using U.S. commercial bank data

Article Abstract:

A diagnostic test for showing the point at which adding a year of data no longer improves X-efficiency estimates is proposed. The test is demonstrated on a distribution-free approach (DFA) cost efficiency model employing data for US commercial banks for the period 1984-1994, with the coefficients in the cost function allowed to vary over time. Results indicate that six years of data can ensure that estimated X-efficiency holds insignificant amounts of random error, and that use of eight or more years of data may counter the DFA assumption that banklevel inefficiency remains constant over time.

Research, Multivariate analysis, Nonparametric statistics

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Best practice analysis of bank branches: an application of DEA in a large Canadian bank

Article Abstract:

Data envelopment analysis (DEA) is used to analyze the performance of the Ontario based branches of a major Canadian bank, with emphasis on the operational performance of branch staff. Focus is also placed on quantifying and discussing the effect of model choice on results. DEA models with multiplier constraints are used to enhance efficiency estimates. A model that adds constraints on the input multipliers is used to pinpoint cost efficient branches and estimate allocative cost-minimizing efficiency.

Usage, Canada, Data envelopment analysis, Branch banks

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Measuring efficiency at U.S. banks: accounting for heterogeneity is important

Article Abstract:

Differences in X-inefficiency measures obtained from a model constraining the cost function to be similar for all banks in the nation and a model allowing cost functions and error terms to differ across Federal Reserve Districts are compared. Both models consider the quality and riskiness of bank output. Results indicate that Third District banks operate more efficiently than other banks, although estimating a single cost function across the nation lacks flexibility.

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