X-efficiency and economies of scale in pension fund administration and investment

Gosse A.G. Alserda, Jacob A. Bikker*, Fieke S.G. Van Der Lecq

*Corresponding author for this work

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Pension funds’ operating costs impair pension benefits, so it is crucial for pension funds to operate at the lowest cost possible. In practice, we observe substantial differences in costs per member for Dutch pension funds, both across and within pension fund size classes. This article presents new estimates of scale economies of pension funds and is the first that also measures pension fund X-inefficiency. We use a unique supervisory data set which distinguishes between administrative and investment costs and apply various approaches and models. Our estimates show large economies of scale for pension fund administrations, but modest diseconomies of scale for investment activities. We also found that many pension funds have substantial X-inefficiencies for both administrative and investment activities. The two kinds of inefficiency differ across types of pension funds. Therefore, most pension funds should be able to improve their cost performance, and hence increase pension benefits.

Original languageEnglish
Pages (from-to)5164-5188
Number of pages25
JournalApplied Economics
Issue number48
Early online date12 Jul 2018
Publication statusPublished - 14 Oct 2018


  • cost elasticity
  • Efficiency
  • operating costs
  • optimal scale
  • pension funds
  • stochastic cost frontier analysis

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