An examination of the economic efficiency of class I railroads: A profit function analysis

This article employs a nonlinear system of Cobb-Douglas profit and input demand equations to analyze price and technical efficiency in a sample of presumably not-for-profit mutual and presumably profit-maximizing stock savings institutions. Theories of property rights and agency are reviewed to provide predictions of price efficiency (i.e., profit maximization and cost minimization behavior), and technical efficiency. The study makes several contributions to the literature. First, it examines the effect of ownership form on both price and technical efficiency. Second, it separately examines the effect of regulatory form on both price and technical efficiency. The model enables us to analyze the separate effects of ownership and regulatory form across a heterogeneous sample of firms. We also analyze the effects of risk in the form of two separate regulatory variables and the effect of market share on economic efficiency.Financial intermediaries have been the subject of numerous studies that examine various aspects of economic efficiency. The effect of ownership form on economic efficiency has not been widely examined. Private ownership has usually been equated with the profit maximization objective. Relatively little research has been performed on privately owned not-for-profit firms (such as mutuals). Theory would suggest that efficient mutuals would engage in cost minimization behavior, but not profit maximization behavior. Nichols (1967) performed a seminal study of the savings and loan industry, noting that mutuals may engage in behavior that is inconsistent with either cost minimization or profit maximization objectives.The objective of this study is to examine the economic efficiency of savings institutions, both stock and mutual, using a system of Cobb-Douglas profit and input demand functions. Mullineaux (1978) first employed a simplified version of a profit function in the study of the commercial banking industry. More recently, Hancock (1985) used a system of translog profit and input demand functions in a study of commercial banks.

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“…The model employed has been utilized elsewhere. See Stansell (1988a, 1988b) and Stansell and Hollas (1988) for applications to other industries.…”

Section: Development Of the Profit Function Modelmentioning

confidence: 99%

An examination of the relative economic efficiency of mutual vs. stock savings institutions

Stansell

Hollas

1990

J Real Estate Finan Econ

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Relative economic efficiency in Texas nursing facilities: A profit function analysis

1999

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An examination of the relative economic efficiency of commercial vs. cooperative telephone companies

Stutzman

Stansell

1992

J Econ Finan

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An examination of the economic efficiency of class I railroads: A profit function analysis

Cited by 9 publications

References 18 publications

An examination of the relative economic efficiency of mutual vs. stock savings institutions

An examination of the relative economic efficiency of mutual vs. stock savings institutions

Relative economic efficiency in Texas nursing facilities: A profit function analysis

An examination of the relative economic efficiency of commercial vs. cooperative telephone companies

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