scholarly journals Scale and Scope Economies in Banking: A Case Study of the Agricultural Development Bank of Pakistan

1996 ◽  
Vol 35 (3) ◽  
pp. 203-213 ◽  
Author(s):  
Musleh-Ud Din ◽  
Ejaz Ghani ◽  
Sarfraz Khan Qureshi
Keyword(s):  
Agricultural Development ◽  
Economies Of Scale ◽  
Returns To Scale ◽  
Cost Savings ◽  
Production Costs ◽  
Joint Production ◽  
Economies Of Scope ◽  
Development Bank ◽  
Bank Branches ◽  
Constant Returns To Scale

This paper examines the scale and scope efficiency of the Agricultural Development Bank of Pakistan. Using the production approach to measuring bank outputs and costs, a translog cost function is estimated to provide an assessment of the bank’s scale and scope efficiency, and to quantify the extent to which its production costs are sensitive to size and output mix. Our results show that the bank enjoys both overall and product-specific economies of scale and, therefore, there exists scope for the bank to expand its operations at declining average cost. We show that even though bank branches in all size categories enjoy economies of scale, the extent of such economies is larger for branches operating at a smaller scale of production. This implies that as the bank branches grow larger in size in terms of both loan and deposit accounts, they move closer to attaining constant returns to scale. It is also shown that the marginal costs of servicing both loan and deposit accounts decline as bank branches grow larger in size in terms of either the number of loans or the number of deposits. This confirms that branches operating at a larger scale of production have attained greater cost efficiency in terms of servicing the loan and deposit accounts. As regards economies of scope, our results show that the bank’s production technology is characterised by cost complementarity, which gives rise to cost savings through the joint production of loan and deposit accounts.

scholarly journals Do traders learn to select efficient market institutions?

2021 ◽  
Author(s):  
Carlos Alós-Ferrer ◽  
Johannes Buckenmaier ◽  
Georg Kirchsteiger
Keyword(s):  
Returns To Scale ◽  
Production Costs ◽  
Switching Behavior ◽  
Double Auction ◽  
Trading Behavior ◽  
Market Institutions ◽  
Market Institution ◽  
Simple Rules ◽  
Rules Of Thumb ◽  
Constant Returns To Scale

AbstractWhen alternative market institutions are available, traders have to decide both where and how much to trade. We conducted an experiment where traders decided first whether to trade in an (efficient) double-auction institution or in a posted-offers one (favoring sellers), and second how much to trade. When sellers face decreasing returns to scale (increasing production costs), fast coordination on the double-auction occurs, with the posted-offers institution becoming inactive. In contrast, under constant returns to scale, both institutions remain active and coordination is slower. The reason is that sellers trade off higher efficiency in a market with dwindling profits for biased-up profits in a market with vanishing customers. Hence, efficiency alone might not be sufficient to guarantee coordination on a single market institution if the surplus distribution is asymmetric. Trading behavior approaches equilibrium predictions (market clearing) within each institution, but switching behavior across institutions is explained by simple rules of thumb, with buyers chasing low prices and sellers considering both prices and trader ratios.

Technical efficiency drivers for the Italian water industry

2010 ◽  
pp. 87-103
Author(s):  
Tiziana Caliman ◽  
Paolo Nardi
Keyword(s):  
Technical Efficiency ◽  
Business Strategy ◽  
Economies Of Scale ◽  
Negative Impact ◽  
Returns To Scale ◽  
Geographical Location ◽  
Parametric Models ◽  
Water Industry ◽  
Component Distribution ◽  
Constant Returns To Scale

The aim of this work is to introduce a first analysis concerning the relevance that ownership and financial structure, but also market dimension and business portfolios, have on the technical efficiency of Italian water utilities. Even though scholars have provided information on the influence of some dimensional or geographical variables, mono-utility character or ownership on efficiency, no paper, to the best of our knowledge, has ever considered the presence of all these hedonic variables as efficiency shifters or drivers. Antonioli and Filippini (2001) have not included ownership; Benvenuti and Gennari (2008) have included ownership and multi-utility strategy, but excluded the geographical dimension; Fabbri and Fraquelli (2000) have not included geographical location, business strategy or ownership; furthermore, most analyses of the Italian water sector have focused on the ATO level (investments, labour costs) and not on utility performances. We have estimated four heteroskedastic stochastic production frontiers: two different parametric models, where the hedonic dummy mono is either in the model as an additional variable or it is used to parameterize the variance of the inefficiency term; two competitive statistical formulations have also been introduced to specify the inefficiency component distribution, that is, the half normal and the exponential distributions. The most important findings of this paper can be summarized as follows. The labour, capital and other input elasticities are always highly significant, positive and quite stable in all the performed models, as expected for a well-behaved production function. The main results show that the mono-business strategy is not efficient; at the same time, operating water and sewerage together implies higher efficiency than water- only management. Theoretically, the population density can have an ambiguous effect on efficiency: on one hand, it could be more expensive to serve dispersed customers, but, on the other, it could generate congestion problems. It could be argued that the second effect prevails, therefore a higher density is accompanied by a higher inef- ficiency. The analysis points out that the variance of the idiosyncratic term is a function of the size of the firm, which is measured as the number of connected properties; the null hypothesis, that the firms use a constant returns-to-scale technology, has also been rejected. Considering the 1994 reform, it is possible to state that the integration of water and sewerage has substantially been positive; at the same time, the economies of scale and the ambiguity of density justify the division into provincial basins. The role of the private sector in the water industry, in agreement with previous literature, has neither a positive nor a negative impact on efficiency and ownership is simply not influent [obviously the quality of service should be considered, although the same indifference seems to emerge (Dore et al., 2001)]. Southern Italy suffers from a higher degree of inefficiency (also recently confirmed by Svimez, 2009), and this is probably the most important issue that has to be dealt with, because of the risks of drought and watering bans in those Regions during summer.

Examining the off Balance Sheet Exposure and Efficiency of Indian Commercial Banks – A DEA Approach

2020 ◽  
Vol 6 (02) ◽  
pp. 60-72
Author(s):  
Kompalli Sasi Kumar
Keyword(s):  
Private Sector ◽  
Returns To Scale ◽  
Allocative Efficiency ◽  
Balance Sheet ◽  
Cost Savings ◽  
Public And Private ◽  
Financial Variables ◽  
Proxy Variables ◽  
Public And Private Sector ◽  
Constant Returns To Scale

The study examined the exposure and efficiency of select public and private sector banks towards off balance sheet items by applying Data Envelopment Analysis (DEA) on the key financial performance ratios of banks. The study covered a period of 5 years ranging from 2013 to 2017 and conducted a year wise analysis. The study selected 20 different type of variables (financial variables) for building Input –Output Model to test DEA for examining efficiency. These variables are acting as proxy variables for indicating the effect of Off balance sheet exposures on the financial health of the business. These variables are extracted from the financial statements of respective banks on a year on year basis and required adjustments are done. The study investigated the Off balance sheet exposures in the areas of Foreign Exchange Transactions, Guarantees, Acceptance and Endorsements etc., The proxy variables, so identified for the study are employed for understanding various efficiencies of banks like scale efficiencies involve Constant Returns to Scale (CRS), Variable Returns to Scale (VRS) and average efficiencies like Technical Efficiency (TE), Cost Efficiency (CE), Allocative Efficiency (AE). The study find out that throughout the study period, the select banks exhibited constant returns to scale, except CUB and AXIS Bank in the first year of study (2013) displayed increasing returns to scale due to heavy exposures. In the category of efficiency parameters, AXIS Bank and CUB are displaying lower efficiencies in the segment of private sector banks and Andhra Bank and OBC exhibiting lower efficiencies in the segment of public sector banks. Here lower efficiencies with references to cost savings aspects and output generation, this may be due to their scale of operations in the industry. The study concluded that large banks are exhibiting highest efficiencies than compared to small banks operating in the industry. This is definitely an area for further research to the industry and researchers to examine the direct effect of Off balance sheet transactions (IFRS amendments in this direction only), so that credit risk can be reduced considerably in the business. So that business houses can take up calculated risk in the international markets.

Defence Industrial Policy in a Military Alliance

2006 ◽  
Vol 43 (4) ◽  
pp. 473-489 ◽  
Author(s):  
Keith Hartley
Keyword(s):  
Industrial Policy ◽  
Economies Of Scale ◽  
Cost Savings ◽  
Production Costs ◽  
Burden Sharing ◽  
Gains From Trade ◽  
Potential Cost ◽  
Research Issues ◽  
Military Alliance ◽  
The Eu

Much of the alliance literature has focused on the collective defence benefits and burden-sharing. This article considers the potential for developing a defence industrial policy in a military alliance. Previous proposals from the literature are reviewed, especially proposals for economic specialization based on comparative advantage applied to both armed forces and defence industries in a military alliance. European Union (EU) defence policy is outlined, including its armaments agencies (OCCAR and the European Defence Agency), and inefficiencies in EU defence markets are identified. Economic theory offers some policy guidelines for an efficient defence industrial policy in a military alliance, including gains from trade and competition, from learning and scale economies, and from reducing the duplication of costly R&D. These economic principles are applied to the EU and are also applicable to NATO. Evidence of efficiency gains from trade and from economies of scale and learning is reviewed and applied to various scenarios for the creation of a Single European Market for defence equipment. The scenarios include a liberalized competitive market, a centralized EU procurement agency and a ‘twin-track’ model. Estimates are presented of the cost savings from these scenarios. However, proposals for an efficient defence industrial policy will be opposed by the potential losers who will prefer alternative industrial policies involving international collaboration and offsets. Among these alternatives, collaboration is assessed as a distinctive European policy. The inefficiencies of collaboration are reviewed, including its impact on development and production costs and on delays in delivery. Consideration is given to the research issues to be addressed by an economic evaluation of European collaborative projects. The article concludes by stressing the inefficiencies of current procurement policies in the EU and NATO and the potential cost savings from the adoption of a more efficient defence industrial policy within an alliance.

The Rules of Derived Demand when the Firm is a Monopolist

1975 ◽  
Vol 41 (04) ◽  
pp. 379-387
Author(s):  
R.W. Latham ◽  
D.A. Peel
Keyword(s):  
Production Function ◽  
Economies Of Scale ◽  
Scale Parameter ◽  
Returns To Scale ◽  
Elasticity Of Demand ◽  
Competitive Industry ◽  
Competitive Behaviour ◽  
Polar Opposite ◽  
Derived Demand ◽  
Constant Returns To Scale

In a recent paper Andrieu [l] derived the rules of derived demand for a factor in a perfectly competitive industry when the industry’s production function was homogeneous but not necessarily of degree one. In order to achieve compatibility with competitive behaviour economies of scale were assumed to be external to each firm but internal to the industry. Within this framework he showed that Marshall’s third rule concerning relative shares was modified and, further, proposed a ‘ fifth law ’ with respect to the returns to scale parameter : ‘ Other things being equal, an increase in the returns to scale will make the derived demand for a factor more (less) elastic if the demand for output is elastic (inelastic). The purpose of this note is to examine a model which is the polar opposite to that considered by Andrieu. Here the firm is assumed to be the industry i.e. a monopolist. Non-constant returns to scale are introduced by assuming that the production function is homogeneous of an arbitrary degree. The analysis is not completely general since both the price elasticity of demand and the elasticity of supply of the second factor are assumed to be constant. However within this model it is shown that not only are Marshall’s second and third laws modified but also Andrieu’s fifth law.

Does Club Size Matter: An Examination of Economies of Scale, Economies of Scope, and Organizational Problems

2014 ◽  
Vol 28 (3) ◽  
pp. 266-280 ◽  
Author(s):  
Pamela Wicker ◽  
Christoph Breuer ◽  
Markus Lamprecht ◽  
Adrian Fischer
Keyword(s):  
Size Effects ◽  
Economies Of Scale ◽  
Production Costs ◽  
Economies Of Scope ◽  
Organizational Size ◽  
Club Theory ◽  
Sport Clubs ◽  
Using Data ◽  
Size Matter ◽  
Organizational Problems

Size is a central characteristic of organizations. While previous studies point to size differences among nonprofit sport clubs, size effects have not yet been investigated systematically. The concepts of economies of scale and economies of scope are used to explain size advantages. Yet, club theory stresses that benefits from sharing production costs only exist until some point and decrease afterward. The purpose of this study is to examine size effects in sport clubs using data from two nationwide online surveys in Germany (n = 19,345) and Switzerland (n = 6,098). The results support the existence of economies of scope, since costs decrease with increasing number of different sports (not codes) offered in the same club. Yet, clubs only benefit from reduced costs until some point supporting club theory. Organizational size has a significant effect on various organizational problems. The findings have implications for the management of sport clubs and for policy makers.

Trade, Immigration, and Cross‐Border Investment

2009 ◽  
Author(s):  
Ronald Rogowski
Keyword(s):  
Economies Of Scale ◽  
Returns To Scale ◽  
Individual Factor ◽  
Cross Border ◽  
Marginal Returns ◽  
Constant Returns To Scale

This article discusses the implications of four models related to trade, immigration, and cross-border investment. These four models are: Hecksher-Ohlin, Samuelson-Jones and Ricardo-Viner, neo-Ricardian, and Economies of Scale. The first three models assume constant returns to scale, but all models make the conventional assumption of diminishing marginal returns to any individual factor. The article discusses each model in detail, focusing on trade in products and cross-border migration and investment.

scholarly journals Study on Urban Efficiency Measurement and Spatiotemporal Evolution of Cities in Northwest China Based on the DEA–Malmquist Model

2019 ◽  
Vol 11 (2) ◽  
pp. 434 ◽  
Author(s):  
Jun Yin ◽  
Qingmei Tan
Keyword(s):  
Technical Efficiency ◽  
Economies Of Scale ◽  
High Efficiency ◽  
Returns To Scale ◽  
Northwest China ◽  
Scale Efficiency ◽  
Spatiotemporal Evolution ◽  
Capital Cities ◽  
Low Efficiency ◽  
Constant Returns To Scale

Urban efficiency can effectively measure the management and allocation level of urban factor inputs. Based on the data of 30 prefecture-level cities in Northwest China from 2006 to 2015, urban efficiency is measured by data envelopment analysis (DEA). Then the spatiotemporal evolution rule is identified by Malmquist model. The results illustrate that the overall average urban efficiency of cities in Northwest China each year from 2006 to 2015 was at the low level. Only Jiayuguan, Yulin, Yan’an, and Karamay reached the high average urban efficiency, while Dingxi, Pingliang, Guyuan, Shangluo, Tianshui, Longnan, and Baiyin were at the inefficient level. Most cities in Northwest China were still in the “growing” stage of increasing returns to scale. The scale of urban investment was relatively insufficient, and economies of scale had not yet formed. Cities with decreasing returns to scale were mainly distributed in the capital cities and the central and sub-central cities of Guanzhong-Tianshui Economic Zone with relatively abundant urban resources and capital. Cities with constant returns to scale were mainly distributed in four cities including Yan’an, Yulin, Jiayuguan, and Karamay with high efficiency. The overall comprehensive efficiency, technical efficiency, and scale efficiency of cities in Northwest China were not only low, but also showing a downward trend. The overall progress of urban technology had failed to make up for the shortfall caused by low efficiency, resulting in total factor productivity (TFP) decreasing by 0.5%. Therefore, the cities in Northwest China should continuously improve their technical efficiency and scale efficiency, and ultimately enhance the comprehensive efficiency.

scholarly journals Economies of scale in the water sector: a survey of the empirical literature

2011 ◽  
Vol 1 (3) ◽  
pp. 179-193 ◽  
Author(s):  
Gustavo Ferro ◽  
Emilio J. Lentini ◽  
Augusto C. Mercadier
Keyword(s):  
Economies Of Scale ◽  
Universal Access ◽  
Unit Cost ◽  
Returns To Scale ◽  
Empirical Literature ◽  
Water Sector ◽  
Unit Costs ◽  
Proportional Change ◽  
Constant Returns To Scale ◽  
The Relationship

The issue of the most favorable size and optimal industry structure in the water sector is a relevant topic in many countries, due to fragmentation of the water sector and the key role played by municipalities. Important debates are taking place worldwide about how to provide universal access to the water supply and offer an efficient service. Regarding efficiency, the possibility of exploiting economies of scale would imply better resource allocation, the potential for lower water charges, and greater geographical coverage. By surveying the empirical research from different parts of the world, we aim to shed some light on the topic of economies of scale, and to provide a synthesis of the literature. We also aim to determine whether there is a tradeoff between centralization and decentralization. Our survey shows that, for several countries, variations in efficiency of water provision due to economies of scale do exist. Increases in efficiency related to economies of scale are found for populations in the range of 100,000 to 1 million people served. For larger populations, volume- or density-constant returns to scale are observed, followed by decreasing returns to scale; the reverse occurs for smaller values, suggesting that cost savings are derived from consolidation of providers. [Returns to scale refer to changes in output resulting where all inputs increase by a constant factor. If output increases by that same proportional change, then there are constant returns to scale. If output increases by less than that proportional change, there are decreasing returns to scale. If output increases by more than that proportional change, there are increasing returns to scale. Returns to scale is a technological phenomenon, due to the relationship between inputs and outputs in the production function. Economies of scale refer to reductions in unit cost as the scale of production increases. Diseconomies of scale are the opposite: increasing in unit costs as the scale of production increases. Scale changes mean a proportional increase in all factors of production. Economies of scale are a economical phenomenon, due to the relationship between unit costs and the level of production.]

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