Testing Cost Function Convexity under Nonconvex Variable Returns-to-Scale Technologies: Evidence from U.S. Banks

Xiaoqing Chen (), Kristiaan Kerstens () and Shirong Zhao ()
Additional contact information
Xiaoqing Chen: School of Management Science and Engineering, Nanjing University of Information Science and Technology, Nanjing, 210044, China.
Kristiaan Kerstens: Univ. Lille, CNRS, IESEG School of Management, UMR 9221 - LEM - Lille ´Economie Management, F-59000 Lille, France.
Shirong Zhao: Corresponding Author. School of Finance, Dongbei University of Finance and Economics, Dalian 116025, Liaoning, China.

No 2026-EQM-04, Working Papers from IESEG School of Management

Abstract: In this work, we assess the similarities between two nonconvex variable returns-to-scale nonparametric technologies: the traditional free disposal hull technology, and an alternative technology defined as the intersection of non-increasing and non-decreasing returns-to-scale technologies. The latter technology is slightly larger than the traditional free disposal hull, and it has rarely if ever been employed in empirical work. We also explore the differences between the corresponding two cost functions: the cost function based on the intersection of non-increasing and non-decreasing returns-to-scale cost functions is also larger than the traditional nonconvex variable returns to scale cost function and represents a new contribution to the literature. We define ways to compute both technologies and cost functions. We explore the empirical similarities between these two technologies and cost functions as well as their convex counterparts. We check whether both nonconvex technologies and cost functions make any differences in testing for convexity using a secondary data set: we still reject convexity under all circumstances.

Keywords: Nonconvex Technologies; Intersection Frontier; Cost Functions; Technical Efficiency; Cost Efficiency; Allocative Efficiency (search for similar items in EconPapers)
Pages: 34 pages
Date: 2026-06
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.ieseg.fr/wp-content/uploads/2026/08/2026-EQM-04.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ies:wpaper:e20260609

Access Statistics for this paper

More papers in Working Papers from IESEG School of Management Contact information at EDIRC.
Bibliographic data for series maintained by Lies BOUTEN ().