Analyzing Cost Efficient Production Behavior Under Economies of Scope: A Nonparametric Methodology

Laurens Cherchye, Bram De Rock and Frederic Vermeulen

No 2319, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In designing a production model for firms that generate multiple outputs, we take as a starting point that such multi-output production refers to economies of scope, which in turn originate from joint input use and input externalities. We provide a nonparametric characterization of cost efficient behavior under these conditions, and subsequently institute necessary and sufficient conditions for data consistency with such efficient behavior that only include observed firm demand and supply data. We illustrate our methodology by examining the cost efficiency of research programs in Economics and Business Management faculties of Dutch universities. This application shows that the proposed methodology may entail robust conclusions regarding cost efficiency differences between universities within specific specialization areas, even when using shadow prices to evaluate the different inputs.

Keywords: nonparametric tests; production behavior; multi-product firms; input externalities; joint input use; economies of scope (search for similar items in EconPapers)
JEL-codes: C12 C14 D21 P32 Q12 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2006-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published - published in: Operations Research, 2008, 56(1), 204-221

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Related works:
Journal Article: Analyzing Cost-Efficient Production Behavior Under Economies of Scope: A Nonparametric Methodology (2008)
Working Paper: Analyzing cost efficient production behavior under economies of scope: a nonparametric methodology (2008)
Working Paper: Analyzing Cost Efficient Production Behavior Under Economies of Scope: A Nonparametric Methodology (2006)
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