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Estimating scale economies in non-convex production models

Giovanni Cesaroni, Kristiaan Kerstens () and Ignace Van de Woestyne
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Ignace Van de Woestyne: KU Leuven

Journal of the Operational Research Society, 2017, vol. 68, issue 11, 1442-1451

Abstract: Abstract The literature on nonparametric frontier technologies lacks a method for the measurement of scale economies in non-convex settings. This paper proposes a general procedure which is based on the minimization of the ray average cost and requires the solution of a single programming problem. Our approach allows for multiple optima to introduce the case of global sub-constant scale economies, and it also permits the estimation of scale economies at a local level. The empirical application investigates the role of replicability and the relationship between global and local indicators. It also points out the managerial implications for companies operating in the Italian public transit industry.

Keywords: Free Disposal Hull; returns to scale; scale economies (search for similar items in EconPapers)
Date: 2017
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