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Estimating scale economies in non-convex production models

Author

Listed:
  • Giovanni Cesaroni

    (Prime Minister’s Office)

  • Kristiaan Kerstens

    (IESEG School of Management)

  • Ignace Van de Woestyne

    (KU Leuven)

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.

Suggested Citation

  • Giovanni Cesaroni & Kristiaan Kerstens & Ignace Van de Woestyne, 2017. "Estimating scale economies in non-convex production models," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 68(11), pages 1442-1451, November.
  • Handle: RePEc:pal:jorsoc:v:68:y:2017:i:11:d:10.1057_s41274-016-0162-7
    DOI: 10.1057/s41274-016-0162-7
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