Big and beautiful? On non-parametrically measuring scale economies in non-convex technologies

Kristof De Witte and Rui C. Marcques

Working Papers of Department of Economics, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven

Abstract: Knowledge on the scale economies drives the incentives of regulators, governments and individual utilities to scale-up or scale-down the scale of operations. This paper considers the returns to scale (RTS) in non-convex frontier models. In particular, we evaluate RTS assumptions in a Free Disposal Hull model, which accounts for uncertainty and heterogeneity in the sample. Additionally, we provide a three-step framework to empirically analyze the existence and extent of RTS in real world applications. In a first step, the presence of scale (and scope) economies is verified. Secondly, RTS for individual observations are examined while in a third step we derive the optimal scale for a sector as a whole. The framework is applied to the Portuguese drinking water sector where we find the optimal scale to be situated around 7 to 10 million m3.

Keywords: Free Disposal Hull; economies of scale; optimal size; water sector (search for similar items in EconPapers)
Date: 2008-08
New Economics Papers: this item is included in nep-knm
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://lirias.kuleuven.be/bitstream/123456789/197115/4/DPS0822.pdf

Related works:
Journal Article: Big and beautiful? On non-parametrically measuring scale economies in non-convex technologies (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ete:ceswps:ces0822

Access Statistics for this paper

More papers in Working Papers of Department of Economics, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven
Bibliographic data for series maintained by library EBIB ().