one switch utility functions and a measure of risk consider the relative attractiveness to a decision maker of two financial gambles as the wealth of that individual varies it may seem reasonable that either one alternative should be preferred for all wealth levels or that there exists a unique critical wealth level at which the decision maker switches from preferring one alternative to the other decreasing risk aversion is not sufficient for this property to hold we identify the small class of utility functions for which it does we show how the property leads naturally to a measure of risk the results of this paper apply equally well to discounting functions for cash flows one switch discount functions permit at most one change in preference between cash flows as all payoffs are deferred in time

measuring risk reduction benefits with discounted longevity there are many ways to assess the benefits and costs of risk reduction policies this paper shows that discounted longevity as a measure of benefits and the negative of net output as a measure of costs can be deduced from the shepard and zeckhauser utility maximization model

financial liberalization financial regulation and bank efficiency a multi country analysis this article investigates the impact of financial reforms on bank efficiency more specifically we distinguish between two different types of financial reforms i e financial liberalization measures and measures of the quality of bank regulation and supervision i e financial regulation and study their relationship to bank efficiency separately moreover we analyse whether the impact of financial liberalization on bank efficiency is conditional on the quality of regulation and supervision of the banking system we apply stochastic frontier analysis to calculate bank efficiency at the individual bank level and use a new and detailed database that measures different aspects of financial reforms the data set consists of 87 312 bank year observations covering 61 countries for the period 1996 2005 overall we show that the impact of financial liberalization policies on bank efficiency is conditional on the extent to which bank regulation and supervision has been adopted and developed

regulations and productivity growth in banking evidence from transition economies this paper examines the relationship between the regulatory and supervision framework and the productivity of banks in 22 countries over the period 1999 2009 we follow a semiparametric two step approach that combines malmquist index estimates with bootstrap regressions the results indicate that regulations and incentives that promote private monitoring pmon have a positive impact on productivity restrictions on banks activities relating to their involvement in securities insurance real estate and ownership of nonfinancial firms also have a positive impact regulations relating to the first and second pillars of basel ii namely capital requirements capr and official supervisory power spr do not have in general a statistically significant impact on productivity over the study period although they appear to gain in importance following the onset of the financial crisis in 2007 the latter finding indicates that stringent capital and supervisory standards have positive productivity effects when financial pressures peak our results are robust when controlling for various country specific features and alternative estimation approaches

parametric efficiency tests economies of scale and input demand in u s electric power generation duality theory has been applied increasingly in recent years to study the structure of production a major advantage of using duality theory is that systems of input demand equations can be derived by simple differentiation facilitating the use of flexible functional forms also use of duality theory makes it possible to choose a representation of the technology which has desirable properties for estimation such as exogeneity of the regressors however the use of a dual representation of production structure is appropriate only if the corresponding maintained hypothesis concerning economic behavior e g cost minimization or profit maximization is valid the perceived advantages of the dual approach to studying production structure have led to some applications in which the maintained hypothesis concerning economic behavior is unlikely to be appropriate for example neoclassical cost functions have been used to study the characteristics of production in regulated industries despite an extensive theoretical literature indicating that a profit maximizing regulated firm would not minimize costs subject to market prices 2 in this paper we propose a generalized cost function that retains the principal advantages of the neoclassical cost function but does not require that cost minimization subject to market prices be imposed as a maintained hypothesis in our model firms are assumed to base their production decisions on unobservable shadow prices which reflect the effects of regulation on the effective prices of inputs parametric tests for cost minimization are obtained by expressing shadow prices as functions of market prices the generalized cost function is estimated with data for regulated electric utilities the parametric restrictions corresponding to cost minimizing behavior subject to market prices are rejected implying that the use of a neoclassical cost function is not appropriate in this application 3

technical and allocative efficiency in european banking this paper specifies an empirical framework for estimating both technical and allocative efficiency using the translog cost share system thus providing a solution to the issue known in the literature as the greene problem the model is applied to a large panel of european banks and the results are compared with those of a model that does not include an allocative inefficiency term and also with those obtained by using a consistent bayesian technique our results suggest that models which include only technical efficiency significantly overestimate it while parameter estimates from the model that includes both technical and allocative efficiency are very close to the ones obtained from the bayesian approach thus enhancing our confidence in the proposed methodology finally the fact that allocative efficiency of banks in our sample improves more than technical efficiency underlines the importance of including an allocative inefficiency component in parametric efficiency models

parametric tests of allocative efficiency in the manufacturing sectors of india and pakistan this paper estimates allocative inefficiency in the manufacturing sectors of india and pakistan based on an extension of the translog profit function approach we propose a new method to the estimation of allocative inefficiency in two countries or groups the model is estimated using pooled annual data from the large scale manufacturing sectors of india and pakistan over the period 1959 87 we find evidence of allocative inefficiencies in both countries specifically results reveal that manufacturing firms in the two countries over utilize capital and raw materials relative to labour and energy the magnitude of over utilization of capital is more severe in pakistan than in india we argue that these findings are hardly surprising given the structure of factor markets and past government policies in the two countries

modeling international investment decisions for financial holding companies abstract this research analyzes the internationalization process model developed by johanson and vahlne and derives two integer programming investment decision models that consider the risk attitudes of investment firms johanson and vahlne s model provides a starting point for building a model that suits the investment approach and decision making process of financial holding companies in practice when firms make an international investment decision there is a need for a model that can generate outputs based on financial measures such as profit investment returns and tolerable levels of risk thus in this paper johanson and vahlne s concepts are studied and financial managers are interviewed to derive models that match the investment decision procedures of the firms the model helps firms manage the risks of their investments and derive accurate investment strategies based on investment objectives and constraints

competition and allocative efficiency the case of the u s telephone industry this study investigates the effect of competition on the productive efficiency of the u s telephone industry taking into account the fact that the industry was subject to rate of return regulation it is shown that competition induces the incumbents to use capital inputs closer to the unconstrained optima thereby reducing the allocative inefficiency caused by the averch johnson effect this effect is in addition to the usual technical efficiency improvement induced by competition empirical results based on annual data for the u s telephone industry for the 1951 90 period suggested that competition improved the allocative efficiency of the incumbent firms which had been under a rate of return regulation until 1989 copyright 1995 by mit press

parametric estimation of technical and allocative inefficiency with panel data the error components approach to estimating allocative inefficiency imposes restrictive assumptions on the distributions of the errors and functional form the parametric approach does not require special assumptions about the error distribution or technology but typically assumes technical efficiency or restrictive functional forms the parametric approach also allows for systematic firm responses to shadow prices the authors generalize the parametric approach to a panel data setting and show that input and firm specific allocative inefficiency as well as firm specific technical inefficiency can be identified and estimated using a flexible functional form this is demonstrated empirically with an application to u s airlines copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

effects of allocative inefficiency on resource allocation and energy substitution in pakistan s manufacturing empirical economists often ignore that firms may not minimise costs in the presence of allocative inefficiency assuming strict cost minimisation when actually cost is not minimum may produce biased parameter estimates and elasticities we consider a method for estimating effects of allocative inefficiency on resource allocation and factor substitution and apply it to data from pakistan s manufacturing results show strong evidence of allocative inefficiency leading to over utilization of raw material and capital viz a viz energy and labour and increasing cost of production of firms by 1 per annum computed elasticities diverge from their true values in the presence of allocative inefficiency

the impact of regulatory reforms on cost structure ownership and competition in indian banking this paper evaluates the impact of financial sector reforms on the cost structure characteristics and on the ownership cost efficiency relationship in indian banking it also examines the impact of reforms on the dynamics of competition in the lending market we find evidence that deregulation improves banks performance and fosters competition in the lending market results suggest technological progress once indian commercial banks have adjusted to the new regulatory environment this however does not translate in efficiency gains there is also evidence of an ownership effect on the level and pattern of efficiency change finally competition keeps building pace even in the re regulation period and technological improvements are not hampered by the tightening of prudential norms

banking deregulation and allocative efficiency in pakistan abstractthis article examines the impact of deregulation policies on allocative efficiency of banks in pakistan it investigates whether deregulation has impacted the pattern of allocative efficiency of banks and explores which bank ownership segment has been more responsive it uses data from 1991 to 2005 and explicitly models allocative inefficiency by using the translog shadow cost share system empirical results show that overregulation and imperfect market structure hampers the ability of banks to make competitive decisions we find evidence of allocative inefficiency leading to over utilization of labour and deposits vis a vis operating cost empirical results for time varying allocative efficiency show declining levels of allocative inefficiency for state owned and private banks in post reform period deregulation policies induce state owned banks to decrease over utilization of labour relative to deposits and operating cost while private banks succeed in using operating cost closer to optimal leve

testing efficiency hypotheses in joint production a parametric approach n recent years a great deal of research has been directed to the modelling and measurement of technical and allocative efficiency in production with few exceptions this research has been restricted to single product firms however recent developments in duality theory have facilitated the extension of this research to multi product firms the main purpose of this paper is to develop a model of the multiproduct firm in which the possibilities of both technical and allocative inefficiency are incorporated in an econometrically useful way the first model we develop includes a nonneutral2 type of technical inefficiency and three distinguishable types of allocative inefficiency output mix input mix and scale each type of inefficiency is costly to the firm in the sense that each causes a reduction in profit beneath the maximum value attainable under full efficiency the cost of each type of inefficiency depends on the magnitude of the inefficiency and the structure of the underlying production technology in the second model we develop technical inefficiency remains nonneutral but allocative inefficiency is not generally decomposable into output mix input mix and scale components however both technical and allocative inefficiency remain costly to the firm the cost of each type of inefficiency depending on its magnitude and the structure of the underlying production technology we model the technology of a competitive profit maximizing multi product firm with the dual profit function this enables us to use hotelling s lemma to generate a system of profit maximizing output supply and input demand equations these equations are then modified to allow for the possibility of technical and three types of allocative inefficiency a virtue of using the profit function to represent production technology is that it permits a straightforward comparison of maximum profit under full efficiency with actual profit and with the profit that would result from any combination of the four types of inefficiency this enables us to allocate the cost of inefficiency to each of four components our model of inefficiency is parametric and is embedded in a generalized leontief profit function although any flexible specification of the profit function can be used the model is developed in sections ii iv estimation of the model is considered in section v an empirical example designed to illustrate the workings of the model is discussed in section vi section vii concludes

attraction or distraction corporate social responsibility in macao s gambling industry this paper attempts to investigate how and why organisations in macao s gambling industry engage in corporate social responsibility csr it is based on an in depth investigation of macao s gambling industry with 49 semi structured interviews conducted in 2011 we found that firms within the industry were emphasising pragmatic legitimacy based on both economic and non economic contributions in order to project positive images of the industry while glossing over two domains of adverse externalities problem gambling among visitors and the pollution and despoliation of the environment by engaging symbolically rather than substantively in csr the gambling firms were diverting attention away from issues of moral legitimacy in order to be allowed to continue to pursue business as usual as a means of obtaining substantial financial returns in a social cultural and socio political context that was exerting relatively little public pressure to improve corporate social and environmental performance we conjecture that the gambling firms were feeding on borrowed time

time horizon and the discount rate abstract we consider an economy a la lucas 1978 econometrica46 1429 1446 with a risk averse representative agent the exogenous growth rate of the economy follows a random walk we characterize the set of utility functions for which it is efficient to discount more distant cash flows at a lower rate the benchmark result is that when the growth rate is almost surely nonnegative the yield curve is decreasing if and only if relative risk aversion is decreasing with wealth relaxing the assumption on the absence of recession requires more restrictions on preferences such as increasing relative prudence journal of economic literature classification numbers d81 d91 q25 q28

financial liberalization and bank efficiency a comparative analysis of india and pakistan this paper provides a comparative analysis of the evolution of the technical efficiency of commercial banks in india and pakistan during 1988 1998 a period characterized by far reaching changes in the banking industry brought about by financial liberalization data envelopment analysis is applied to two alternative input output specifications to measure technical efficiency and to decompose technical efficiency into its two components pure technical efficiency and scale efficiency the consistency of the estimated efficiency scores are checked by examining their relationship with three traditional non frontier measures of bank performance in addition the relationship between bank size and technical efficiency is examined it is found that the overall technical efficiency of the banking industry of both countries improved gradually over the years especially after 1995 unlike public sector banks in india public sector banks in pakistan witnessed improvement in scale efficiency only it is also found that banks are relatively more efficient in generating earning assets than in generating income this is attributed to the presence of high non performing loans in addition it is found that the gap between the pure technical efficiency of different size groups has declined over the years

the impact of liberalization on the productive efficiency of indian commercial banks abstract we examine the productive efficiency of 70 indian commercial banks during the early stages 1986 1991 of the ongoing period of liberalization we use data envelopment analysis to calculate radial technical efficiency scores we then use stochastic frontier analysis to attribute variation in the calculated efficiency scores to three sources a temporal component an ownership component and a random noise component we find publicly owned indian banks to have been the most efficient followed by foreign owned banks and privately owned indian banks we also find a temporal improvement in the performance of foreign owned banks virtually no trend in the performance of privately owned indian banks and a temporal decline in the performance of publicly owned indian banks we attempt to explain these patterns in terms of the government s evolving regulatory policies

price distortions and resource use efficiency in indian agriculture a restricted profit function approach this paper develops a generalized profit function that incorporates price distortions resulting from imperfect market conditions sociopolitical and institutional constraints as well as technical and allocative inefficiency the model is applied to test 1 the appropriateness of the neoclassical profit function and 2 the effect of education and farm size on allocative performance using farm level data from indian agriculture empirical results reject the neoclassical profit maximization hypothesis based on market prices in favor of the general model with price distortions and therefore help to improve allocation of inputs and output farm size is found to reduce price distortions only for small farmers copyright 1992 by mit press

do lenders favor politically connected firms rent provision in an emerging financial market corruption by the politically connected is often blamed for economic ills particularly in less developed economies using a loan level data set of more than 90 000 rms that represents the universe of corporate lending in pakistan between 1996 and 2002 we investigate rents to politically connected rms in banking classifying a rm as political if its director participates in an election we examine the extent nature and economic costs of political rent provision we nd that political rms borrow 45 percent more and have 50 percent higher default rates such preferential treatment occurs exclusively in government banks private banks provide no

impact of financial reforms on efficiency of state owned private and foreign banks in pakistan this article uses a unique bank level data from 1991 to 2000 and evaluates how financial reforms affect banking efficiency of domestic and foreign banks in pakistan the results suggest that banking efficiency falls during initial reform period when banks adjust to enhanced competition but increases in more advanced stages of reform while in general foreign and private banks show superior efficiency and factor productivity than do state owned banks the relative performance of foreign banks worsens after the consolidation stage of the financial reforms is over we show the importance of link between bank size asset quality and bank branches with efficiency indexes and also note that every 10 increase in share of nonperforming to total loans decreases banking efficiency by 6 to 10

allocative distortions technical progress and input demand in u s airlines 1970 1984 this paper generalizes a globally concave and flexible cost function to accommodate allocative distortions these distortions are introduced through shadow prices and are specified as functions of regressors that make distortion factors firm input and time specific the estimated model based on a panel of nineteen u s airlines observed during 1970 84 rejects the hypothesis of no allocative distortions increase in costs due to allocative distortions are calculated for each airline over the entire period the rate of technical progress and economies of scale are also estimated based on models with and without allocative distortions copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

substituting one risk increase for another a method for measuring risk aversion abstract this paper defines the rate of substitution of one stochastic change to a random variable for another it then focuses on the case where one of these changes is an nth degree risk increase and the other is an mth degree risk increase where n m 1 the paper shows that the rate of substitution for these two risk increases can be used to provide a broader definition and two additional characterizations of the nth degree ross more risk averse partial order the implications for local intensity measures of nth degree risk aversion are also examined the analysis organizes the existing results as well as generates new ones

mean variance vulnerability this paper transfers the concept of gollier and pratt s gollier c j w pratt 1996 risk vulnerability and the tempering effect of background risk econometrica64 1109 1123 risk vulnerability into mean variance preferences risk vulnerability is shown to be equivalent to the slope of the mean variance indifference curve being decreasing in mean and increasing in variance next we introduce the notion of mean variance vulnerability to link the concepts of decreasing absolute risk aversion risk vulnerability properness and standardness all of the abovementioned concepts are characterized in terms of mean variance indifference curve properties and in terms of absolute risk measures

financial sector liberalization bank privatization and efficiency evidence from pakistan abstract the pakistani banking system has been transformed over the past 15 years through liberalization the entry of private banks the privatization of public sector banks and the tightening of prudential regulations the effects of these changes on bank productivity and relative efficiency are investigated using various techniques bank productivity in terms of profits has increased and new entrants have been efficient but the dispersion of efficiency remains wide the privatized banks improved their profit efficiency in the period immediately following their privatization but in the subsequent years only one significantly improved its efficiency whereas the other did not differentiate itself in terms of efficiency from the remaining state owned banks the new private domestic banks generally proved to be among the most efficient and sometimes out performed the foreign banks

politicians and banks political influences on government owned banks in emerging markets abstract government ownership of banks is very common in countries other than the united states this paper provides cross country bank level empirical evidence about political influences on these banks it shows that government owned banks increase their lending in election years relative to private banks this effect is robust to controlling for country specific macroeconomic and institutional factors as well as bank specific factors the increase in lending is about 11 of a government owned bank s total loan portfolio or about 0 5 of the median country s gdp per election per government owned bank

trends in efficiency in response to regulatory reforms the case of indian and pakistani commercial banks this paper attempts to estimate trends in the efficiency levels of indian and pakistani commercial banks between 1985 and 2003 a time period which encompasses two phases of significant change to the regulation of the financial sector in both countries our efficiency estimates show that during the initial years of the post reform period a reduction in efficiency is observed for banks in both countries however efficiency levels were found to have increased subsequently suggesting a period of initial adjustment throughout much of the 1990s followed by a subsequent correction in the latter part of the sample period

risky choices and correlated background risk the analysis of a risky project should take into account not only uncertainties about the return from that project project risk but also uncertainties associated with other ongoing projects and with exogenous factors that can impact final wealth background risk the presence of background risk can change the optimal course of action with respect to a project and ignoring such risk might lead to a poor decision most work on background risk assumes that project risk and background risk are independent and are additive in their impact on wealth however independence is often unrealistic and background risk operates in a multiplicative manner in many situations we relax the independence assumption and consider a model with both additive and multiplicative background risk the optimal decisions in the correlated setting can be very different than those that would appear optimal if the correlation were ignored the impact of correlation differs in the additive and multiplicative cases with positive correlation being beneficial in some cases and negative correlation in others the analytical and numerical results indicate that in analyzing decision making problems it is very important to understand the direction and degree of dependence between project risk and background risks

the relative efficiency of public and private firms in a regulated environment the case of u s electric utilities abstract the relative efficiency of privately owned and publicly owned electric utilities is investigated using theoretical and econometric models that allow for the effects of both ownership type and regulation the estimation results indicate that the two types of firms are equally cost inefficient in the united states the average effect of inefficiency is to increase the cost of production by 2 4 percent holding output constant inefficiency increases the average quantities demanded of capital and labor and decreases the average quantity demanded of fuel