Hierarchical Efficiency in Banking: Decentralized Bi-Level Programming with Stackelberg Dynamics

The inherent hierarchical and decentralized nature of decision-making within banking systems presents significant challenges in evaluating operational efficiency.This study introduces a novel bi-level programming (BLP) framework, incorporating Stackelberg equilibrium dynamics, to assess the performance of bank branches.By combining with data envelopment analysis (DEA), the proposed BLP-DEA model captures the leader-follower relationship that characterizes banking operations, wherein the leader focuses on marketability and the follower prioritizes profitability.A case study involving 15 Iranian bank branches was employed to demonstrate the model's capacity to evaluate performance comprehensively at both decision-making levels.The results underscore the model's effectiveness in identifying inefficiencies, analyzing cost structures, and providing actionable insights for performance optimization.This approach offers a robust tool for addressing the complexities associated with decentralized decision-making in hierarchical organizations.The findings have significant implications for both theoretical development and practical application, especially in the context of improving the operational efficiency of banking institutions.