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A Dual Measure of Economies of Scope

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Information on the economies of scope (or cost complementarities) between two or more output variables is traditionally obtained from the second derivative properties of an econometrically estimated multi-output cost function. However, in some instances the econometric estimation of a cost function may not be viable, because cost or input price data are not readily available or because the assumption of cost minimising behaviour is not appropriate in the industry at hand, perhaps due to government ownership or regulatory controls. In this paper we address this issue by utilising the duality between the cost and input distance functions in deriving an expression for a measure of economies of scope in terms of the derivatives of an input distance function. We derive expressions for the special cases of the CES and translog functional forms, and then provide an empirical illustration using sample data on Australian aged care facilities, an industry which is currently undergoing a major pricing and regulatory review. Our empirical results indicate that there is some evidence for existence of economies of scope between high care and low care patients, a result which is of particular interest to policy makers in this industry.

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File URL: http://www.uq.edu.au/economics/cepa/docs/WP/Hazarghasht_WP03_06.pdf
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Paper provided by School of Economics, University of Queensland, Australia in its series CEPA Working Papers Series with number WP032006.

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Date of creation: 2006
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Handle: RePEc:qld:uqcepa:22

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  1. Jim Griffin & Mark Steel, 2007. "Bayesian stochastic frontier analysis using WinBUGS," Journal of Productivity Analysis, Springer, Springer, vol. 27(3), pages 163-176, June.
  2. Songqing Jin & Scott Rozelle & Julian Alston & Jikun Huang, 2005. "Economies Of Scale And Scope And The Economic Efficiency Of China'S Agricultural Research System," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 1033-1057, 08.
  3. Ivaldi, Marc & Mccullough, Gerard, 1999. "Density and Integration Effects on Class I U.S. Freight Railroads," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 93, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Hanoch, Giora, 1975. "The Elasticity of Scale and the Shape of Average Costs," American Economic Review, American Economic Association, American Economic Association, vol. 65(3), pages 492-97, June.
  5. Takanori Ida & Tetsuya Kuwahara, 2004. "Yardstick Cost Comparison and Economies of Scale and Scope in Japan's Electric Power Industry," Asian Economic Journal, East Asian Economic Association, East Asian Economic Association, vol. 18(4), pages 423-438, December.
  6. Panzar, John C & Willig, Robert D, 1981. "Economies of Scope," American Economic Review, American Economic Association, American Economic Association, vol. 71(2), pages 268-72, May.
  7. Coelli, Tim J. & Fleming, Euan M., 2003. "Diversification Economies And Specialisation Efficiencies In A Mixed Food And Coffee Smallholder Farming System In Papua New Guinea," 2003 Annual Meeting, August 16-22, 2003, Durban, South Africa, International Association of Agricultural Economists 25841, International Association of Agricultural Economists.
  8. Rezvanian, Rasoul & Mehdian, Seyed, 2002. "An examination of cost structure and production performance of commercial banks in Singapore," Journal of Banking & Finance, Elsevier, Elsevier, vol. 26(1), pages 79-98, January.
  9. Blackorby, Charles & Russell, R Robert, 1981. "The Morishima Elasticity of Substitution; Symmetry, Constancy, Separability, and Its Relationship to the Hicks and Allen Elasticities," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 48(1), pages 147-58, January.
  10. Bloch, Harry & Madden, Gary G & Savage, Scott J, 2001. "Economies of scale and scope in Australian telecommunications," MPRA Paper 11154, University Library of Munich, Germany.
  11. Tim J. Coelli & Chris O'Donnell, 2003. "A Bayesian Approach To Imposing Curvature On Distance Functions," CEPA Working Papers Series, School of Economics, University of Queensland, Australia WP032003, School of Economics, University of Queensland, Australia.
  12. Catherine J. Morrison Paul & Warren E. Johnston & Gerald A. G. Frengley, 2000. "Efficiency in New Zealand Sheep and Beef Farming: The Impacts of Regulatory Reform," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 325-337, May.
  13. Atkinson, Scott E. & Primont, Daniel, 2002. "Stochastic estimation of firm technology, inefficiency, and productivity growth using shadow cost and distance functions," Journal of Econometrics, Elsevier, Elsevier, vol. 108(2), pages 203-225, June.
  14. David N. Laband & Bernard F. Lentz, 2003. "New Estimates of Economies of Scale and Scope in Higher Education," Southern Economic Journal, Southern Economic Association, Southern Economic Association, vol. 70(1), pages 172-183, July.
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Cited by:
  1. Ofori-Bah, Adeline & Asafu-Adjaye, John, 2011. "Scope economies and technical efficiency of cocoa agroforesty systems in Ghana," Ecological Economics, Elsevier, Elsevier, vol. 70(8), pages 1508-1518, June.
  2. Jiro Nemoto & Noriko Furumatsu, 2014. "Scale and scope economies of Japanese private universities revisited with an input distance function approach," Journal of Productivity Analysis, Springer, Springer, vol. 41(2), pages 213-226, April.
  3. Nonthakot, Phanin & Fleming, Euan M. & Villano, Renato A., 2008. "An Assessment of the Impact of Strategic Alliances in Food Processing on the Technical Efficiency of Housewives Groups in Thailand," 2008 International Congress, August 26-29, 2008, Ghent, Belgium, European Association of Agricultural Economists 44411, European Association of Agricultural Economists.
  4. Singbo, Alphonse G. & Emvalomatis, Grigorios & Alfons, Oude Lansink, 2012. "Assessing the impact of crop specialization on farms’ performance in vegetables farming in Benin: a non-neutral stochastic frontier approach," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C., Agricultural and Applied Economics Association 149172, Agricultural and Applied Economics Association.
  5. Maria Olivares & Heike Wetzel, 2011. "Competing in the Higher Education Market: Empirical Evidence for Economies of Scale and Scope in German Higher Education Institutions," Economics of Education Working Paper Series, University of Zurich, Institute for Strategy and Business Economics (ISU) 0070, University of Zurich, Institute for Strategy and Business Economics (ISU).
  6. Villano, Renato & Fleming, Euan & Fleming, Pauline, 2010. "Evidence of farm-level synergies in mixed-farming systems in the Australian Wheat-Sheep Zone," Agricultural Systems, Elsevier, Elsevier, vol. 103(3), pages 146-152, March.
  7. Renner, Swetlana & Hockmann, Heinrich & Glauben, Thomas, 2011. "Measuring flexibility of multi-output firms: a primal and a dual measure," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland, European Association of Agricultural Economists 114797, European Association of Agricultural Economists.
  8. Renner, Swetlana & Glauben, Thomas & Hockmann, Heinrich, 2012. "Measurement And Decomposition Of Flexibility Of Multi-Output Firms," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil, International Association of Agricultural Economists 124865, International Association of Agricultural Economists.

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