Cost Structure Analysis Under Disequilibrium: Price, Scale, Efficiency and Capacity Utilisation Effects.

This paper proposes a "Flexible Disequilibrium Model" (FDM) which allows for a flexible specification of technology and of firm-level heterogeneity in technical and allocative efficiency levels. FDM is implemented on a G-5 banking dataset covering the period 1989-1996. Significant scale economies are found for large banks. Most firms are found to increasingly suffer from excess labour. For French and German banks, the impact of labour market rigidities seems considerable. The relative uncompetitiveness of the cost position of French and German banks appears to be entirely due to high labour prices and labour market rigidities.