Are all Scales Optimal in DEA? Theory and Empirical Evidence

Finn Førsund and Lennart Hjalmarsson

Journal of Productivity Analysis, 2004, vol. 21, issue 1, 25-48

Abstract: Policy recommendations concerning optimal scale of production units may have serious implications for the restructuring of a sector. The piecewise linear frontier production function framework (DEA) is becoming the most popular one for assessing not only technical efficiency of operations, but also for scale efficiency and calculation of optimal scale sizes. The main purpose of the present study is to investigate if neoclassical production theory gives any guidance as to the nature of scale properties in the DEA model, and empirically explore such properties. Theoretical results indicate that the DEA model may have more irregular properties than usually assumed in neoclassical production theory, concerning shape of optimal scale curves and the M-locus. The empirical results indicate that optimal scale may be found over almost the entire size variations in outputs and inputs, thus making policy recommendations about efficient scale difficult. It seems necessary to establish the nature of optimal scale before any practical conclusions can be drawn. Proposals for indexes characterizing the nature of optimal scale are provided. Copyright Kluwer Academic Publishers 2004

Keywords: optimal scale; scale elasticity; efficiency; Regular Ultra Passum (RUP) law; data envelopment analysis (DEA); efficiency frontier; M-locus (search for similar items in EconPapers)
Date: 2004
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

Downloads: (external link)
http://hdl.handle.net/10.1023/B:PROD.0000012451.84910.6e (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Are all Scales Optimal in DEA? Theory and Empirical Evidence (2002)
Working Paper: Are all scales optimal in Dea? Theory and empirical evidence (2002)
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:kap:jproda:v:21:y:2004:i:1:p:25-48

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/11123/PS2

DOI: 10.1023/B:PROD.0000012451.84910.6e

Access Statistics for this article

Journal of Productivity Analysis is currently edited by William Greene, Chris O'Donnell and Victor Podinovski

More articles in Journal of Productivity Analysis from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().