Recovering Risky Technologies Using the Almost Ideal Demand System: An Application to U.S. Banking

Joseph Hughes, William Lang, Loretta Mester and Choon-Geol Moon

Center for Financial Institutions Working Papers from Wharton School Center for Financial Institutions, University of Pennsylvania

Abstract: We argue for a shift in the focus of modeling production from the traditional assumptions of profit maximization and cost minimization to a more general assumption of managerial utility maximization that can incorporate risk incentives into the analysis of production and recover value-maximizing technologies. We show how this shift can be implemented using the Almost Ideal Demand System. In addition, we suggest a more general way of measuring efficiency that can incorporate a concern for the market value of firms' assets and equity and identify value-maximizing firms. This shift in focus bridges the gap between the risk-incentives literature in banking that ignores the microeconomics of production and the production literature that ignores the relationship between production decisions and risk.

Date: 2000-06
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Citations: View citations in EconPapers (57)

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Related works:
Journal Article: Recovering Risky Technologies Using the Almost Ideal Demand System: An Application to U.S. Banking (2000)
Working Paper: Recovering risky technologies using the almost ideal demand system: an application to U.S. banking (2000)
Working Paper: Recovering Risky Technologies Using The Almost Ideal Demand System: An Application To U.S. Banking (2000)
Working Paper: Recovering risky technologies using the almost ideal demand system: an application to U.S. banking (1997)
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