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Estimating economies of scale and scope with flexible technology

Listed author(s):
  • 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.

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File URL: http://link.springer.com/10.1007/s11123-016-0467-1
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Article provided by Springer in its journal Journal of Productivity Analysis.

Volume (Year): 45 (2016)
Issue (Month): 2 (April)
Pages: 173-186

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Handle: RePEc:kap:jproda:v:45:y:2016:i:2:d:10.1007_s11123-016-0467-1
DOI: 10.1007/s11123-016-0467-1
Contact details of provider: Web page: http://www.springer.com

Order Information: Web: http://www.springer.com/economics/microeconomics/journal/11123/PS2

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