Measuring Welfare Cost of Banking Industry in Iran: The Approach of Allocative and X-inefficiency

Shafiee, Afsaneh; Shafiee, Afsaneh; Tashkini, Ahmad

Measuring Welfare Cost of Banking Industry in Iran: The Approach of Allocative and X-inefficiency

Authors

Afsaneh shafiee

Ahmad Tashkini

Abstract

This study examines the social cost of banking industry in Iran (17 governmental and private banks) in an unbalanced panel data model.
To conduct estimations, two different approaches were taken: 1- Welfare Triangle approach 2- Libenstein’s approach. In the former, welfare triangle is measured assuming banking industry operating in full technical efficiency however, the latter includes both the effect of welfare triangle and the cost of likely technical X-inefficiency. The result of the first method showed that the social cost of banks in Iran is little, amounting to be less than 1 percent of GDP in 2008 while within the same period, the second method resulted in 4 percent of GDP, as the social cost of banks in Iran.

Keywords

classification: Social Costs

X-inefficiency

Allocative inefficiency

demand elasticity

banking industry