Based on 1989-92 data of 1407 German universal banks we perform a non-parametric analysis of efficiency in the German banking industry. Applying the „data envelopment“ (DEA) approach, we solve four linear programs for each bank to calculate measures of overall, technical, allocative, and scale efficiency. In addition, we use the measure of scale elasticity recently suggested for DEA by Førsund and Hjalmarsson. Our results on overall efficiency and its first two components are in line with previous econometric evidence, emphasizing in particular the importance of technical inefficiency. However, DEA leads to a much lower efficient size than parametric frontier analysis.
JEL classification: C44, G21
* Paper to be presented at the 1997 conference of the European Economic Association. We are indebted to U. Simon and M. Sautter of McKinsey&Co., Frankfurt, and to B. Gentsch of the Genossenschaftsverband Bayern, Munich, for giving us access to their data. Seminar participants at the universities of Augsburg, Bonn and Hagen provided valuable comments and suggestions. Financial support from the University of Augsburg and from the Raiffeisen/ Schulze-Delitzsch Foundation is gratefully acknowledged.