A Recursive Thick Frontier Approach to Estimating Production Efficiency*

We introduce a new panel data estimation technique for production and cost functions, the recursive thick frontier approach (RTFA). RTFA has two advantages over existing econometric frontier methods. First, technical inefficiency is allowed to be dependent on the explanatory variables of the frontier model. Secondly, RTFA does not hinge on distributional assumptions on the inefficiency component of the error term. We show by means of simulation experiments that RTFA outperforms the popular stochastic frontier approach and the ‘within’ ordinary least squares estimator for realistic parameterizations of a productivity model. Although RTFAs formal statistical properties are unknown, we argue, based on these simulation experiments, that RTFA is a useful complement to existing methods.     

UNCOVERING THE COMMON RISK‐FREE RATE IN THE EUROPEAN MONETARY UNION

We introduce longitudinal factor analysis (LFA) to extract the common risk‐free (CRF) rate from a sample of sovereign bonds of countries in a monetary union. Since LFA exploits the typically very large longitudinal dimension of bond data, it performs better than traditional factor analysis methods that rely on the much smaller cross‐sectional dimension. European sovereign bond yields for the period 2006–2011 are decomposed into a CRF rate, a default risk premium and a liquidity risk premium. Our empirical findings suggest that investors chase both credit quality and liquidity, and that they price double default risk on credit default swaps. Copyright © 2013 John Wiley & Sons, Ltd.     

The efficiency and the conduct of European banks: Developments after 1992

We assess the efficiency of the European banking sector in the 5-year period following the implementation of the Second Banking Directive of the European Union (EU). We first determine the degree of cost efficiency of EU banks in 1993-1997. After that, we explore to what extent efficient European banks are managed differently than their inefficient peers. Our datasets comprise 5 years of observations on 1347 savings and 873 commercial banks. We use the new recursive thick frontier approach (RTFA) method to establish our results. We find that structural factors, such as technological progress or increased bank competition, have lowered the cost base of banks by about 5% annually during the sample period. Managerial inability to control costs (X-inefficiency) is with 17-25% the main source of bank inefficiency in the EU. Managerial efficiency varies a great deal within Europe, and there seems to be no tendency towards convergence. We find that small savings banks can exploit economies of scale. The EU savings bank sector would cut costs by about 3% if small savings banks merged.     

A factor analysis approach to measuring European loan and bond market integration

By using an existing and a new convergence measure, this paper assesses whether bank loan and bond interest rates are converging for the non-financial corporate sector across the euro area. Whilst we find evidence for complete bond market integration, the market for bank loans remains segmented, albeit to various degrees depending on the type and size of the loan. Factor analysis reveals that rates on large loans and small loans with long rate fixation periods have weakly converged in the sense that, up to a fixed effect, their evolution is driven by common factors only. In contrast, the price evolution of small loans with short rate fixation periods is still affected by country-specific dynamic factors. There are few signs that bank loan rates are becoming more uniform with time.     

Multilevel Analysis of Repeated Measures Data

Hierarchically structured data are common in many areas of scientific research. Such data are characterized by nested membership relations among the units of observation. Multilevel analysis is a class of methods that explicitly takes the hierarchical structure into account. Repeated measures data can be considered as having a hierarchical structure as well: measurements are nested within, for instance, individuals. In this paper, an overview is given of the multilevel analysis approach to repeated measures data. A simple application to growth curves is provided as an illustration. It is argued that multilevel analysis of repeated measures data is a powerful and attractive approach for several reasons, such as flexibility, and the emphasis on individual development.     

360 degree feedback: how many raters are needed for reliable ratings on the capacity to develop competences,with personal qualities as developmental goals?

360 degree feedback is a widely used technique in the area of strategic human resource management (SHRM) and strategic human resource development (SHRD). The reliability of 360 degree feedback on the capacity to develop personal qualities has been investigated. This study shows to what extent the number of raters is related to an increasing reliability and an enhancement of correlation between supervisor and peer ratings. Ten raters are needed to reach a satisfying reliability level of 0.7 for the rating of the capacity to develop personal qualities, while six raters are needed for a reliability level of 0.7 with regard to the rating of motivation to develop these qualities. The use of two or three peer raters, as is common in the daily HRM/HRD practice, results in low reliability levels and in low agreement between supervisor and peer ratings. These results imply that 360 degree feedback is more useful in a personal growth system than in an administrative system, where the outcomes of the feedback are considered to be objective representations of work behaviour. Further implications for the SHRM/SHRD practice, especially concerning the development of competences, with personal qualities as developmental goals, are discussed.     

Risk preference and indirect utility in portfolio-choice problems

We consider a portfolio-choice problem with one risky and one safe asset, where the utility function exhibits decreasing absolute risk aversion (DARA). We show that the indirect utility function of the portfolio-choice problem need not exhibit DARA. However, if the (optimal) marginal propensity to invest is positive for both assets, which is true when the utility function exhibits nondecreasing relative risk aversion, then the DARA property is carried over from the direct to the indirect utility function.