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Estimating economies of scale and scope with flexible technology

Author

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  • Thomas P. Triebs

    (University of Munich)

  • David S. Saal

    (Loughborough University)

  • Pablo Arocena

    (Universidad Pública de Navarra)

  • Subal C. Kumbhakar

    (State University of New York at Binghamton)

Abstract

Economies of scope are typically modelled and estimated using a cost function that is common to all firms in an industry irrespective of their type, e.g. whether they specialize in a single output or produce multiple outputs. Instead, we estimate a flexible technology model that allows for type-specific technologies and show how it can be estimated using linear parametric forms including the translog. A common technology remains a special case of our model and is testable econometrically. Our sample, of publicly owned US electric utilities, does not support a common technology for integrated and specialized firms. Our empirical results therefore suggest that assuming a common technology might bias estimates of economies of scale and scope. Thus, how we model the production technology clearly influences the policy conclusions we draw from its characteristics.

Suggested Citation

  • Thomas P. Triebs & David S. Saal & Pablo Arocena & Subal C. Kumbhakar, 2016. "Estimating economies of scale and scope with flexible technology," Journal of Productivity Analysis, Springer, vol. 45(2), pages 173-186, April.
  • Handle: RePEc:kap:jproda:v:45:y:2016:i:2:d:10.1007_s11123-016-0467-1
    DOI: 10.1007/s11123-016-0467-1
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    More about this item

    Keywords

    Economies of scale and scope; Flexible technology; Electric utilities; Vertical integration; Translog cost function;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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