Journal of Productivity Analysis

, Volume 27, Issue 3, pp 209–220 | Cite as

Opening the black box: Finding the source of cost inefficiency

  • Santiago Carbó Valverde
  • David B. Humphrey
  • Rafael López del Paso


Parametric and nonparametric procedures are used to identify the apparent source of cost inefficiency in banking. Inefficiencies of 20–25% from earlier studies are reduced to 1–5% when, in addition to commonly specified cost function influences, variables reflecting banks’ external business environment and industry indicators of “productivity” are added. These productivity indicators explain most of the reduction in bank operating cost over 1992–2001 and was 5 times the reduction in the dispersion of inefficiency. Inefficiency appears stable over time because it is small relative to industry-wide cost changes occurring concurrently and because technology dispersion is imperfect.


Cost efficiency Banks 

JEL Classifications

G21 G28 E58 


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Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  • Santiago Carbó Valverde
    • 1
  • David B. Humphrey
    • 2
  • Rafael López del Paso
    • 1
  1. 1.Departamento de Teoría e Historia EconómicaUniversidad de GranadaGranadaSpain
  2. 2.Department of FinanceFlorida State UniversityTallahasseeUSA

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