On estimating optimal α-returns to scale

Jean-Philippe Boussemart, Walter Briec, Hervé Leleu and Paola Ravelojaona

Journal of the Operational Research Society, 2019, vol. 70, issue 1, 1-11

Abstract: From a theoretical point of view, α $ \alpha $ -returns to scale is a relevant alternative to traditional DEA models for estimating production technologies under global returns to scale assumptions such as strictly increasing or strictly decreasing returns to scale. However, from a methodological and empirical point of view, a remaining question is the estimation of α $ \alpha $ . This contribution proposes an effective methodology to estimate an optimal value of α $ \alpha $ based upon a goodness-of-fit strategy. A global method using a grid search is presented first. Second, for generalised FDH technologies, a minimum extrapolation principle is developed to estimate directly the optimal α $ \alpha $ -returns from a linear program. An illustration on 63 US industries over the period 1987–2012 shows the relevancy of our approach.

Date: 2019
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Working Paper: On Estimating Optimal a-Returns to Scale (2016)
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DOI: 10.1080/01605682.2017.1418148

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