Multiproduct Cost Functions and Scale Economies in Banking

A Sinan Cebenoyan

The Financial Review, 1988, vol. 23, issue 4, 499-512

Abstract: This study provides new and efficient estimates of scale economies in banking. Recent criticism of the incorrect specification of homogenei ty restrictions on the translog cost functions is addressed, and correct estimations are provided. The results indicate that such misspecifications do affect measures of scale economies. The study covers 1980 to 1983 for unit and branch banks. The estimation is further enhanced by introducing factor share equations invoking Sheph ard's lemma and using an iterative Zellner procedure. The results fai l to indicate scale economies for the overall sample. Some evidence of small degrees of scale economies is observed in parts of the sample. Copyright 1988 by MIT Press.

Date: 1988
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