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

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

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.

LanguageEnglish
Pages5164-5188
Number of pages25
JournalApplied Economics
Volume50
Issue number48
Early online date12 Jul 2018
DOIs
StatePublished - 14 Oct 2018

Fingerprint

Pension funds
Economies of scale
X-efficiency
Costs
X-inefficiency
Pensions
Investment activity
Operating costs
Class size
Large economy
Inefficiency

Keywords

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

Cite this

Alserda, Gosse A.G. ; Bikker, Jacob A. ; Van Der Lecq, Fieke S.G./ X-efficiency and economies of scale in pension fund administration and investment. In: Applied Economics. 2018 ; Vol. 50, No. 48. pp. 5164-5188
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X-efficiency and economies of scale in pension fund administration and investment. / Alserda, Gosse A.G.; Bikker, Jacob A.; Van Der Lecq, Fieke S.G.

In: Applied Economics, Vol. 50, No. 48, 14.10.2018, p. 5164-5188.

Research output: Contribution to JournalArticleAcademicpeer-review

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