Heterogeneous credit union production technologies with endogenous switching and correlated effects |
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Authors: | Emir Malikov Diego A. Restrepo-Tobón Subal C. Kumbhakar |
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Affiliation: | 1. Department of Agricultural Economics &2. Rur. Soc., Auburn University, Auburn, Alabama, USA;3. Department of Finance, EAFIT University, Medellín, Colombia;4. Department of Economics, State University of New York at Binghamton, Binghamton, New York, USA;5. University of Stavanger Business School, Stavanger, Norway |
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Abstract: | Credit unions differ in the types of financial services they offer to their members. This article explicitly models this observed heterogeneity using a generalized model of endogenous ordered switching. Our approach captures the endogenous choice that credit unions make when adding new products to their financial services mix. The model that we consider also allows for the dependence between unobserved effects and regressors in both the selection and outcome equations and can accommodate the presence of predetermined covariates in the model. We use this model to estimate returns to scale for U.S. retail credit unions from 1996 to 2011. We document strong evidence of persistent technological heterogeneity among credit unions offering different financial service mixes, which, if ignored, can produce quite misleading results. Employing our model, we find that credit unions of all types exhibit substantial economies of scale. |
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Keywords: | Correlated effects credit unions ordered choice panel data production returns to scale switching regression |
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