Heterogeneous Credit Union Production Technologies with Endogenous Switching and Correlated Effects

Emir Malikov, Diego Restrepo-Tobon () and Subal Kumbhakar

MPRA Paper from University Library of Munich, Germany

Abstract: Credit unions differ in the types of financial services they offer to their members. This paper explicitly models this observed heterogeneity using a generalized model of endogenous ordered switching. Our approach captures the endogenous choice that credit unions make when adding new products to their financial services mix. The model that we consider also allows for the dependence between unobserved effects and regressors in both the selection and outcome equations and can accommodate the presence of predetermined covariates in the model. We use this model to estimate returns to scale for U.S. retail credit unions from 1996 to 2011. We document strong evidence of persistent technological heterogeneity among credit unions offering different financial service mixes, which, if ignored, can produce quite misleading results. Employing our model, we find that credit unions of all types exhibit substantial economies of scale.

Keywords: Credit Unions; Correlated Effects; Ordered Choice; Panel Data; Production; Returns to Scale; Switching Regression (search for similar items in EconPapers)
JEL-codes: C33 C34 D24 G21 (search for similar items in EconPapers)
Date: 2016-05
New Economics Papers: this item is included in nep-ban and nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:71593

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