Ownership, Technical Effi ciency and Cost of Bad Loans: Evidence from the Tunisian Banking Industry1

In this paper we compare technical efficiency between publicly and privately owned banks in Tunisia for the period 1998 and 2006. Shadow price of bad loans and their costs by ownership structure is proposed. The methodology used is based on the parametric directional distance function with non performing loans incorporated as an undesirable output in the model. The results suggest no significant differences in the technical inefficiency by ownership structure. However, by evaluating the cost of bad loans, we found some evidence that the public banks have higher costs compared to private banks.
Keywords: Ownership; Undesirable Output; Shadow Price; Directional Distance Function; Banking.
JEL codes: C01, C61, D24, G21, G32, L32