Technical and Allocative Efficiency in European Banking

Sophocles N. Brissimis (), Manthos D. Delis () and Efthymios G. Tsionas
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Efthymios G. Tsionas: Athens University of Economics and Business

No 46, Working Papers from Bank of Greece

Abstract: This paper specifies an empirical framework for estimating both technical and allocative efficiency, which is applied to a large panel of European banks over the years 1996 to 2003. Our methodology allows for self-consistent measurement of technical and allocative inefficiency, in an effort to address the issue known in the literature as the Greene problem. The results suggest that, on average, European banks exhibit constant returns to scale, that technical and allocative efficiency are close to 80% and 75% respectively, and that overall economic efficiency shows a clearly improving trend. We also show through the comparison of various estimators that models incorporating only technical efficiency tend to overestimate it.

Keywords: Technical and allocative efficiency; Translog cost function; Maximum likelihood; European banking (search for similar items in EconPapers)
JEL-codes: C13 G21 L2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-eec and nep-eff
Date: 2006-09
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Persistent link: http://EconPapers.repec.org/RePEc:bog:wpaper:46

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