Heterogeneous Credit Union Production Technologies with Endogenous Switching and Correlated Effects

Econometric Reviews, Forthcoming

29 Pages Posted: 26 May 2016

See all articles by Emir Malikov

Emir Malikov

University of Nevada, Las Vegas

Diego A. Restrepo-Tobon

Universidad EAFIT - School of Economics and Finance - Center for Research in Economic & Finance (CIEF); State University of New York (SUNY) at Binghamton - Department of Economics; EAFIT University

Subal C. Kumbhakar

State University of New York (SUNY) at Binghamton - Department of Economics

Date Written: May 25, 2016

Abstract

Credit unions differ in the types of financial services they offer to their members. This paper 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.

Keywords: Credit Unions, Correlated Effects, Ordered Choice, Panel Data, Production, Returns to Scale, Switching Regression

JEL Classification: C33, C34, D24, G21

Suggested Citation

Malikov, Emir and Restrepo-Tobon, Diego A. and Kumbhakar, Subal C., Heterogeneous Credit Union Production Technologies with Endogenous Switching and Correlated Effects (May 25, 2016). Econometric Reviews, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2784299

Emir Malikov (Contact Author)

University of Nevada, Las Vegas ( email )

4505 S. Maryland Parkway
Las Vegas, NV 89154
United States

Diego A. Restrepo-Tobon

Universidad EAFIT - School of Economics and Finance - Center for Research in Economic & Finance (CIEF) ( email )

Carrera 49 No. 7 South - 50
Medellin
Colombia

State University of New York (SUNY) at Binghamton - Department of Economics ( email )

Binghamton, NY 13902-6000
United States

EAFIT University ( email )

Carrera 49 N° 7 sur – 50
Medellin, Antioquia 00000
Colombia

Subal C. Kumbhakar

State University of New York (SUNY) at Binghamton - Department of Economics ( email )

Binghamton, NY 13902-6000
United States

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