Banking Efficiency in Austria

In the applied efficiency measurement literature, the prevailing view is that all firms share the same production technology and face similar environmental conditions. To an increasing extent, this assumption is being questioned, since the ability of a production unit to transform inputs into outputs is usually influenced by both its internal technical efficiency (the quality of its management) and its external operating environment, which often differs from firm to firm. Thus, we attempt to assess the technical efficiency (or X-efficiency) of the Austrian banking sector, with the focus on both the internal and controllable factors and the environmental and non-controllable factors critical to banking markets. Since the Austrian banking industry is dominated by small to medium-sized banks, we consider local market conditions, mostly external to a bank's management, to be elementary in assessing banking efficiency.