Scale efficiency in Canadian trust companies

A new method for estimating a relative scale function is derived which does not require the specification or estimation of the firm's cost function. The method is applied to a panel of Canadian trust companies for the years 1985-1988. Results show that the industry scale function is convex with respect to firm size, as measured by the firm's assets. The method avoids a number of shortcomings associated with traditional studies of scale economies in financial institutions.