Working Paper
Recovering risky technologies using the almost ideal demand system: an application to U.S. banking
Abstract: The authors argue for a shift in the focus of modeling production from the traditional assumptions of profit maximization and cost minimization to a more general assumption of managerial utility maximization that can incorporate risk incentives into the analysis of production and recover value-maximizing technologies. The authors show how this shift can be implemented using the Almost Ideal Demand System. In addition, the authors suggest a more general way of measuring efficiency that can incorporate a concern for the market value of firms' assets and equity and identify value-maximizing firms. This shift in focus bridges the gap between the risk-incentives literature in banking that ignores the microeconomics of production and the production literature that ignores the relationship between production decisions and risk.
Keywords: Banks and banking - Costs; Banks and banking;
Access Documents
File(s): File format is application/pdf https://www.philadelphiafed.org/-/media/frbp/assets/working-papers/2000/wp00-5.pdf
Bibliographic Information
Provider: Federal Reserve Bank of Philadelphia
Part of Series: Working Papers
Publication Date: 2000
Number: 00-5