[A local governmental welfare function is specified to explore two of its central characteristics: the equity-productivity tradeoff and differential weights across neighborhoods. The model is estimated using service outputs (safety) in the welfare function, as opposed to publicly provided inputs (police), over neighborhoods. The equity-productivity tradeoff is found to be considerable, and not all neighborhoods are weighted equally. The estimation results raise several questions about accepted analysis of governmental behavior.]

This paper examines how banking consolidation has affected small businesses credit. Using the Survey of Small Business Finances, the empirical model examines how credit supply to small firms responds to larger banks, and whether the non-bank supply of credit has offset decreases in credit from banks. Using an empirical model to correct for sample selection, large banks are found to lower the probability of obtaining credit for small businesses, and this lower probability is not offset by increased total loans. Non-bank institutions are found to make up much, but not all, of the decrease.

A local governmental welfare function is specified to explore two of its central characteristics: the equity-productivity trade-off and differential weights across neighborhoods. The constrained maximization model is estimated using service outcomes (safety) in the welfare function, as opposed to publicly provided inputs (police), over neighborhoods. The equity-productivity trade-off is found to be considerable, and not all neighborhoods are weighted equally. The results show that inequality aversion and unequal concern by local government over service outcomes must be addressed explicitly to understand the observed distribution of publicly provided inputs, with important implications for standard analysis of local governmental behavior. Copyright 1987 by American Economic Association.

Steven G. Craig, Janet E. Kohlhase, David H. Papell, Chaos Theory and Microeconomics: An Application to Model Specification and Hedonic Estimation, The Review of Economics and Statistics, Vol. 73, No. 2 (May, 1991), pp. 208-215