부산대학교 도서관

Improving operational efficiency of credit department of farmer's association (CDFA) by means of merger has been an important research and policy issue in Taiwan recently. Previous relevant research has been limited and mostly addressed on the increase of economies of scale, only Huang and Chen (1999) has considered the benefit of mergers from efficiency improvement. In this paper, we adopted the thick frontier concept of Berger and Humphrey (1991) and ex ante simulation method used by Shaffer (1993) for measuring potential cost saving from CDFA's inter and intra groups mergers. Such cost saving can be further decomposed into gains from scale economy and from efficiency improvement. Our empirical results indicate benefit or cost saving of CDFA mergers to be substantial. However, the magnitude of such benefit will depend upon the choice of merger partner and level of efficiency improvement after merging. Merging with CDFA in the lowest cost group will always be a best choice and result in relative large cost saving. Results also show that gains form scale economies of CDFA mergers are comparable to those from efficiency improvement. It is thus plausible to suggest more CDFA mergers in Taiwan in the future. Our ex ante evaluation results of CDFA mergers can also provide useful information to policy makers.