Consistency Conditions for Regulatory Analysis of Financial Institutions: A Comparison of Frontier Efficiency Methods

We propose a set of consistency conditions which frontier efficiency measures should meet to be most useful for regulatory analysis or other purposes. The efficiency estimates should be consistent in their efficiency levels, rankings, and identification of best and worst firms, consistent over time...

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Bibliographic Details
Published in:Journal of economics and business 1998-03, Vol.50 (2), p.85-114
Main Authors: Bauer, Paul W., Berger, Allen N., Ferrier, Gary D., Humphrey, David B.
Format: Article
Language:English
Subjects:
Comparative studies
Efficiency
Financial institutions
Regulation
Regulation of financial institutions
Statistical analysis
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Summary:We propose a set of consistency conditions which frontier efficiency measures should meet to be most useful for regulatory analysis or other purposes. The efficiency estimates should be consistent in their efficiency levels, rankings, and identification of best and worst firms, consistent over time and with competitive conditions in the market, and consistent with standard nonfrontier measures of performance. We provide evidence on these conditions by evaluating and comparing estimates of U.S. bank efficiency from variants of all four of the major approaches—DEA, SFA, TFA, and DFA—and find mixed results.
ISSN:0148-6195
1879-1735
DOI:10.1016/S0148-6195(97)00072-6