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Estimating Economies of Scale and Scope with Flexible Technology

Thomas Triebs (), David Saal (), Pablo Arocena and Subal Kumbhakar ()

No 142, ifo Working Paper Series from ifo Institute - Leibniz Institute for Economic Research at the University of Munich

Abstract: Economies of scale and scope are typically modelled and estimated using cost functions that are common to all firms in an industry irrespective of whether they specialize in a single output or produce multiple outputs. We suggest an alternative flexible technology model that does not make this assumption and show how it can be estimated using standard parametric functions including the translog. The assumption of common technology is a special case of our model and is testable econometrically. Our application is for publicly owned US electric utilities. In our sample, we find evidence of economies of scale and vertical economies of scope. But the results do not support a common technology for integrated and specialized firms. In particular, our empirical results suggest that restricting the technology might result in biased estimates of economies of scale and scope.

Keywords: Economies of scale and scope; flexible technology; electric utilities; vertical integration; translog cost function (search for similar items in EconPapers)
JEL-codes: D24 L25 L94 C51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eff
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
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Related works:
Journal Article: Estimating economies of scale and scope with flexible technology (2016) Downloads
Journal Article: Estimating economies of scale and scope with flexible technology (2016) Downloads
Working Paper: Estimating economies of scale and scope with flexible technology (2016)
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