Scale Economies, Cost Efficiencies and Technological Change in Federal Reserve Payments Processing

J. OF MONEY, CREDIT, AND BANKING, Vol. 28 No. 4, November 1996

Posted: 15 Apr 1998

See all articles by Paul W. Bauer

Paul W. Bauer

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Gary D. Ferrier

University of Arkansas - Sam M. Walton College of Business

Abstract

This paper uses a stochastic cost frontier to examine the scale economies, cost efficiencies, and technological change of three payment instruments (check, ACH, and Fedwire processing) provided by the Federal Reserve over the period 1990-1994. We find evidence of substantial scale economies and cost inefficiencies in the ACH and Fedwire services. Check processing also exhibits substantial cost inefficiency, but is found to have experienced technological "regress," a finding that is likely due to a decrease in processing volume over the sample period.

JEL Classification: G28

Suggested Citation

Bauer, Paul W. and Ferrier, Gary D., Scale Economies, Cost Efficiencies and Technological Change in Federal Reserve Payments Processing. J. OF MONEY, CREDIT, AND BANKING, Vol. 28 No. 4, November 1996, Available at SSRN: https://ssrn.com/abstract=7700

Paul W. Bauer

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

PO Box 6387
Cleveland, OH 44101
United States
216-579-3021 (Phone)

Gary D. Ferrier (Contact Author)

University of Arkansas - Sam M. Walton College of Business ( email )

BA418, Dept. of Economics
Fayetteville, AR 72701
United States
501-575-6223 (Phone)

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