ENJOYING THE QUIET LIFE UNDER DEREGULATION? NOT QUITE. (March 2014)

• Record Type: Journal Article
• Authors: Restrepo‐Tobón, Diego; Kumbhakar, Subal C.
• Is Part Of: Journal of applied econometrics. Volume 29:Number 2(2014)
• Page Start: 333
• Page End: 343
• Publication Date: 2014-03
• Subjects: Econometrics -- Periodicals; 330.015195
• DOI: 10.1002/jae.2374
• Languages: English
• ISSNs: 0883-7252

Abstract

<abstract abstract-type="main" id="jae2374-abs-0001"> <title>SUMMARY</title> <p id="jae2374-para-0001">Most empirical studies in the banking literature assume that the alternative profit function is linearly homogeneous in input prices. We show that such an assumption is theoretically unwarranted and that its use may yield misleading results. We use Koetter <italic>et al.</italic> (<italic>Review of Economics and Statistics</italic> 2012; <bold>94</bold>(2): 462–480) as a benchmark to showcase how empirical results can be sensitive to the linear homogeneity assumption. Contrary to Koetter <italic>et al.</italic>, we find a positive relation between market power and profit efficiency when this assumption is dropped. This relation is slightly weakened after the wave of intrastate and interstate deregulation but not enough to support the 'quiet life' hypothesis. Copyright © 2014 John Wiley &amp; Sons, Ltd.</p> </abstract>