Economics of scale in the United Kingdom building society industry

Hardwick, Philip (1988) Economics of scale in the United Kingdom building society industry. University of Southampton, Doctoral Thesis.

Abstract

Two models of a building society's production process are developed. In Model A, there are three inputs (labour, capital and borrowed funds) and a single output (earning assets). In Model B, there are two inputs (labour and capital) and two outputs (a financial service supplied to savers and financial service supplied to borrowers).

For Model A, a translog total cost function is estimated jointly with two of the derived input cost share equations. In addition to the usual elasticity, three further scale economy measures are developed and estimated: augmented economies of scale, input-specific economies of scale and augmented input- specific economies of scale. The augmented measures take into account induced changes in the number of building society branch offices.

For Model B, a translog multiproduct cost function is estimated jointly with a derived input cost share equation to obtain estimates of overall economies of scale and augmented overall economies of scale. The parameter estimates are then used to compute the derivatives of the marginal costs of each product to test for product-specific economies of scale and economies of scope. (DX84627)

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