The evolution of an industry: US thrifts in the 1990s

This paper estimates multi-product cost functions for nearly 900 thrifts from 1990 to 1995. The results show the thrift industry benefited in the 1990s from a combination of reduced scale diseconomies, technical progress, and industry consolidation. The 1990 sample is characterized by substantial diseconomies of scale, which increased with thrift size, while the 1995 sample shows thrifts of all sizes operating with constant returns to scale. Sample selection is an important issue since there are fundamental differences between the thrifts that exited the industry during the 1990s and those that survived through the 1990s. If one examines all operating thrifts each year, for example, estimates of technical progress are biased upward, since large, inefficient thrifts regularly exited the industry in the 1990s.