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X-efficiency and economies of scale in pension fund administration and investment

Gosse Alserda, Jacob Bikker () and Fieke van der Lecq

No ERS-2017-005-F&A, ERIM Report Series Research in Management from Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam

Abstract: Pension funds’ operating costs come at the cost of benefits, so it is crucial for pension funds to operate at the lowest cost possible. In practice, we observe substantial differences in costs per member for Dutch pension funds, both across and within size classes. This paper discusses scale inefficiency and X-inefficiency using various approaches and models, based on a unique supervisory data set, which distinguishes between administrative and investment costs. Our estimates show large economies of scale for pension fund administrations, but modest diseconomies of scale for investment activities. We also found that many pension funds have substantial X-inefficiencies for both administrative and investment activities. The two kinds of inefficiency differ across types of pension funds. Therefore, most pension funds should be able to improve their cost performance, and hence increase pension benefits.

Keywords: Efficiency; operating costs; cost elasticity; stochastic cost frontier analysis; optimal scale (search for similar items in EconPapers)
JEL-codes: G23 L1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age and nep-eff
Date: 2017-02-20
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Related works:
Journal Article: X-efficiency and economies of scale in pension fund administration and investment (2018) Downloads
Working Paper: X-efficiency and economies of scale in pension fund administration and investment (2017) Downloads
Working Paper: X-efficiency and economies of scale in pension fund administration and investment (2017) Downloads
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