Førsund, Finn R. () (Department of Economics, University of Oslo) Hjalmarsson, Lennart () (Department of Economics, School of Economics and Commercial Law, Göteborg University)
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Policy recommendations concerning optimal scale of production units often have serious implications for the restructuring of a sector, while tests of natural monopoly have important implications for regulatory structure. The piecewise linear frontier production function framework is becoming the most popular one for assessing not only technical efficiency of operations, but also for scale efficiency and calculation of optimal scale sizes. The main purpose of the present study is to check if neoclassical production theory gives any guidance as to the nature of scale properties in the DEA model, and to empirically investigate such properties. The empirical results indicate that optimal scale may be found over almost the entire size variations in outputs and inputs, thus making policy recommendations about scale efficiency dubious. It is necessary to establish the nature of optimal scale before any practical use can be made. Proposals for such indexes that should be calculated are provided.
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Publisher Info
Paper provided by Göteborg University, Department of Economics in its series Working Papers in Economics with number
66.
Length: 26 pages Date of creation: 20 Mar 2002 Date of revision: Publication status: Published in Journal of Productivity Analysis, 2004, pages 25-48. Handle: RePEc:hhs:gunwpe:0066
Contact details of provider: Postal: Department of Economics, School of Business, Economics and Law, Göteborg University Box 640, SE 405 30 GÖTEBORG, Sweden Phone: 031-773 10 00 Web page: http://www.handels.gu.se/econ/ More information through EDIRC
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
McFadden, Daniel, 1978.
"Cost, Revenue, and Profit Functions,"
Histoy of Economic Thought Chapters,
in: Fuss, Melvyn & McFadden, Daniel (ed.), Production Economics: A Dual Approach to Theory and Applications, volume 1, chapter 1
McMaster University Archive for the History of Economic Thought.
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