Estimating a stochastic profit system using homogeneity in technology

Yongseung Han (), Myeong Hwan Kim and Eréndira Yareth Vargas López

Global Business and Economics Review, 2020, vol. 23, issue 2, 212-225

Abstract: This paper estimates a stochastic profit system, which includes technical and allocative inefficiencies, in order to identify the source of profit inefficiency. Previously, the estimation of a stochastic profit system was not fully successful due to the entanglement of parameterised inefficiencies with a random error. We solve the problem by using homogeneity in technology since homogeneity enables a profit function to be separable into two parts: an output and a normalised profit function in which the parameter of technical inefficiency is absent. We apply our method to the Korean savings banks.

Keywords: profit efficiency; banking efficiency; productivity; Korean savings banks. (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:ids:gbusec:v:23:y:2020:i:2:p:212-225

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