Calculating Iranian Banks’ Efficiency, using Fourier’s Globally Flexible Functional Form and Imposing Theoretical Regularity Conditions (in Persian)

Ali Taiebnia () and Arezou Torshabi ()
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Ali Taiebnia: Iran
Arezou Torshabi: Iran

The Journal of Planning and Budgeting (٠صلنامه برنامه ریزی و بودجه), 2011, vol. 16, issue 3, 23-50

Abstract: This paper tries to provide an estimate of efficiency in eight Iranian banks, namely, Melli, Saderat, Mellat, Tejarat, Sepah, Refah, Keshavarzi and Maskan during 1996-2008, using the globally flexible Fourier Cost Functional Form and imposing theoretical regularities, discussed in Neoclassic microeconomic theory. One of the efficiency estimation methods is to estimate the cost function of banks. In order to choose a suitable ‘functional form’ for the cost function, according to Gallant (1982), local flexible functional forms such as translog may misspecify the real cost functional form therefore, there is a tendency for globally flexible functional forms. Meanwhile, Gallant and Golub (1984) showed that estimating cost function without satisfying theoretical regularities, positivity, monotonicity and curvature, results in mismeasured magnitudes of cost efficiency and misleading efficiency results. Hence, it is necessary that these regularity conditions be imposed to cost function. We find that Iranian public banking industry suffers from 15 percent inefficiency in average.

Keywords: Flexible Functional Forms; Fourier; Theoretical Regularity Conditions; Cost Function; Efficiency; Banks (search for similar items in EconPapers)
Date: 2011
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