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Robust Nonparametric Estimation of Efficiency and Technical Change in U.S. Commercial Banking
This paper examines the performance of the U.S. commercial banking industry over 1984–2002.Rather than measuring performance relative to the unknown (and difficult-to-estimate) boundary of the production set, performance for a given bank is measured relative to expected maximum output among m banks using no more of each input than the given bank. This approach permits fully non-parametric estimation with √n-consistency avoiding the usual curse of dimensionality that plagues traditional non-parametric efficiency estimators. The resulting estimates are robust with respect to outliers and noise in the data.