A note: Bootstrap standard errors and confidence intervals for weak axiom of cost minimization (WACM) based bank managerial efficiency estimates

Abstract

Although the nonparametric nature of Varian (Microeconomic Theory, Norton, New York, 1984) Weak Axiom of Cost Minimization (WACM) methodology offers a number of advantages in the estimation of bank managerial efficiency, this approach possesses a potentially critical problem: measurement error and other stochastic influences are not explicitly accounted for in the calculation of managerial efficiency estimates. The failure to account for these factors could significantly effect the validity of WACM based efficiency estimates. The principal objective of this paper is to provide bootstrap based test statistics for the WACM managerial efficiency estimates that explicitly account for these stochastic factors. The managerial efficiency measurement methodology utilized in this paper also provides new estimates of banking industry managerial efficiency.