Economies of scale in building societies

Abstract

This paper presents new measurements of economies of scale in the building society industry by estimating a translog total cost function jointly with the derived input cost share equations. It differs from previous building society studies by defining total cost to include the interest cost of borrowed funds as well as the operating costs of employing labour and capital services. In addition to the usual elasticity, three further scale economy measures are developed and estimated: ‘input-specific economies of scale’, ‘augmented economies of scale’ and ‘augmented input-specific economies of scale’.