A General Method of Deriving the Inefficiencies of Banks from a Profit Function

This article develops a new method of estimating inefficiencies in joint production and shows that unlike the approaches utilized in the previous studies of inefficiency, this method maintains a consistent relationship between the error term of a profit function and the error terms of its price derivatives. A useful by-product of the method is a proof of a Hotelling-like lemma that relates stochastic input demand and output supply functions to stochastic profit functions. While the previous studies fit a single frontier to data on all firms, this paper estimates a frontier unique to every observed firm to allow each one to have a different potential of achieving maximal levels of profit. The new method is applied in the analysis of annual data, 1984–1989, for U.S. commercial banks. Both the analytical and numerical results of the paper show that the residual that the previous studies attribute to inefficiency includes the effects of excluded variables and of inaccuracies in the specified functional forms. Once accurate estimates of these effects are subtracted from the residual, the distortions in the measured inefficiencies should be considerably reduced. Consequently, this article considers how such estimates might be obtained.     

The Price-Quality Relationship—Revisited

Using price data collected in Indianapolis and Lafayette, Indiana, rank order correlations between price and quality were computed. These were compared to correlations based on price data obtained from the publications of consumer product testing organizations. It was found that price-quality correlations based on the price data furnished by consumer product testing organizations may not reflect price-quality correlations for specific markets. A second finding of the study suggests the existence of variability across store types with respect to price-quality correlations.     

Types and Amounts of Information Used by Efficient Consumers

This paper describes a research methodology which assesses the efficiency of consumer decision-making based on the types and amounts of informational cues used. A simple operational method is used to classify consumers into three levels of consumer efficiency based on how well they perform in assessing the optimal choice. The information chosen by perfectly efficient consumers, or those scoring at the maximum level of efficiency, is examined for indicators of optimal information seeking and decision-making techniques.     

Book of Intdernational Economics Affairs: MULTINATIONAL ENTERPRISES — A CONTINUING SAGA

AMERICAN MULTINATIONALS AND AMERICAN INTERESTS, by C. Fred Bergsten, Thomas Horst and Theodore H. Moran ALTERNATIVES TO THE MULTINATIONAL ENTERPRISE, by Mark Casson THE ECONOMICS OF MULTINATIONAL ENTERPRISE, by Neil Hood and Stephen Young