Allocative eciency in branch banking Thomas E. Hartman a , James E. Storbeck b , Patricia Byrnes c, * a Management Department, Keele University, Keele, Staordshire ST5 5BG, UK b Department of Management Science, University of Strathclyde, 40 George Street, Glasgow G1 1QE, UK c Institute for Public Aairs, University of Illinois at Spring®eld, Public Aairs Center 332, Spring®eld, IL 62794-9243, USA Abstract Bank branch eciency and organization change is analyzed using data from 50 savings bank branches in Sweden. First, technical and allocative eciencies are analyzed, using non-priced and priced inputs. Secondly, by grouping the branches according to their organizational designation, eciency is examined by level of service. Trends in performance over two time periods are also analyzed. Ó 2001 Published by Elsevier Science B.V. Keywords: Banking; Allocative eciency; Technical eciency; Bank branch eciency; Swedish banking industry 1. Introduction The Swedish banking industry, like that of many countries, has undergone considerable change in operational policies and structure in recent years, due to the advent of domestic dere- gulation policies, as well as an increase of inter- national competition [13±15]. Because of this rapidly changing environment for ®nancial insti- tutions, the ¯exible evaluation of performance that tells bankers whether or not they are ``doing things right'' has become an important topic to banking reality. But, the rise in US bank failures in recent years [4] underscores the importance of also help- ing bankers know if they are ``doing the right things'' in their management of the business. Both concerns are necessary components for continu- ously monitoring the productivity of the banking functions of multiproduct ®nancial institutions. And, in our present context of productivity mea- surement, the former concept corresponds to technical eciency, while the latter corresponds to allocative eciency. In this paper, we analyze the productivity of providing services in a Swedish Savings and Loan system by assessing both the technical and allo- cative eciencies of operations. Furthermore, we extend this examination to dierences in perfor- mance at dierent service levels in the organiza- tion. The next section of the paper de®nes the service function under study and dierentiates it from that of other banking studies; organizational arrangements within the bank are also discussed. Section 3 de®nes more precisely technical and allocative eciencies. Mathematical models for European Journal of Operational Research 134 2001) 232±242 www.elsevier.com/locate/dsw * Corresponding author. Tel.: +1-217-206-7783; fax: +1-217- 206-7807. E-mail address: byrnes.patricia@uis.edu P. Byrnes). 0377-2217/01/$ - see front matter Ó 2001 Published by Elsevier Science B.V. PII:S0377-221700)00257-5