Scale Elasticity and Returns to Scale

Victor V. Podinovski () and Finn R. Førsund ()
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Victor V. Podinovski: Loughborough University
Finn R. Førsund: University of Oslo

Chapter 17 in Handbook of Production Economics, 2022, pp 681-719 from Springer

Abstract: Abstract This chapter presents conventional and recent developments of the notions of scale elasticity and returns to scale, in both the neoclassical economics framework and the nonparametric methodology of data envelopment analysis. In addition to the standard development of these notions, this chapter provides a rigorous exposition of their extensions to the case of nonsmooth production frontiers, partial scale characteristics, general polyhedral technologies, and global returns to scale. We show that this broad range of extensions naturally arises from the introduction of an output response function that, in a general setting, describes a proportional response of any subset of inputs and outputs to marginal proportional changes of another subset, as observed on the production frontier. This function is closely related to the directional distance function and provides a natural language for the definition and computation of different scale characteristics in both the neoclassical and nonparametric frameworks.

Keywords: Returns to scale; Scale elasticity; Production frontiers; Data envelopment analysis (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-981-10-3455-8_23

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DOI: 10.1007/978-981-10-3455-8_23

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