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Measurement and Sources of Economies of Scope: A Primal Approach

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  • Jean-Paul Chavas
  • Kwansoo Kim

Abstract

Scope economies (reflecting the benefit of a multioutput firm) have been defined by Baumol, Panzar, and Willig in the context of cost functions. This paperuses Luenberger's shortage function to develop a general measure of scope economies directly from the underlying technology. The analysis applies under complete as well as partial specialization. Our primal measure of economies of scope is decomposed into four additive parts: one measuring complementarity, one reflecting economies of scale, one reflecting convexity of the technology, and one reflecting the role of catalytic outputs. This decomposition appears useful and helps generate valuable insights into the economics of specialization.

Suggested Citation

  • Jean-Paul Chavas & Kwansoo Kim, 2007. "Measurement and Sources of Economies of Scope: A Primal Approach," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(3), pages 411-427, September.
  • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200709)163:3_411:masoeo_2.0.tx_2-d
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    1. Ferrier, Gary D. & Grosskopf, Shawna & Hayes, Kathy J. & Yaisawarng, Suthathip, 1993. "Economies of diversification in the banking industry : A frontier approach," Journal of Monetary Economics, Elsevier, vol. 31(2), pages 229-249, April.
    2. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
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    4. Tor Jakob Klette, 1996. "R&D, Scope Economies, and Plant Performance," RAND Journal of Economics, The RAND Corporation, vol. 27(3), pages 502-522, Autumn.
    5. Cohn, Elchanan & Rhine, Sherrie L W & Santos, Maria C, 1989. "Institutions of Higher Education as Multi-product Firms: Economies of Scale and Scope," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 284-290, May.
    6. Ian E. Gorman, 1985. "Conditions for Economies of Scope in the Presence of Fixed Costs," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 431-436, Autumn.
    7. Tai-Hsin Huang & Mei-Hui Wang, 2001. "Measuring scale and scope economies in multiproduct banking? A stochastic frontier cost function approach," Applied Economics Letters, Taylor & Francis Journals, vol. 8(3), pages 159-162.
    8. Scott J. Callan & Janet M. Thomas, 2001. "Economies of Scale and Scope: A Cost Analysis of Municipal Solid Waste Services," Land Economics, University of Wisconsin Press, vol. 77(4), pages 548-560.
    9. de Groot, Hans & McMahon, Walter W & Volkwein, J Fredericks, 1991. "The Cost Structure of American Research Universities," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 424-431, August.
    10. Chambers, Robert G. & Chung, Yangho & Fare, Rolf, 1996. "Benefit and Distance Functions," Journal of Economic Theory, Elsevier, vol. 70(2), pages 407-419, August.
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    Citations

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    Cited by:

    1. Fleming, Euan M. & Villano, Renato A. & Fleming, Pauline, 2008. "Evidence of Scope Economies in the Australian Wheat-Sheep Zone," 82nd Annual Conference, March 31 - April 2, 2008, Royal Agricultural College, Cirencester, UK 36849, Agricultural Economics Society.
    2. Jean-Paul Chavas & Kwansoo Kim, 2015. "Nonparametric analysis of technology and productivity under non-convexity: a neighborhood-based approach," Journal of Productivity Analysis, Springer, vol. 43(1), pages 59-74, February.
    3. Kristiaan Kerstens & Ignace Van de Woestyne, 2009. "Negative Data in DEA: A Simple Proportional Distance Function Approach," Working Papers 2009-ECO-03, IESEG School of Management.
    4. Chavas, Jean-Paul, 2008. "On the economics of agricultural production," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 0(Issue 4), pages 1-16.
    5. Walter Briec & Kristiaan Kerstens & Diego Prior, 2009. "Tangency Capacity Notions Based upon the Pro?t and Cost Functions: A Non-Parametric Approach and a Comparison," Working Papers 2009-ECO-05, IESEG School of Management.
    6. Jean-Paul Chavas & Kwansoo Kim, 2016. "On the Microeconomics of Specialization: the Role of Non-Convexity," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 44(3), pages 387-403, September.
    7. Briec, Walter & Kerstens, Kristiaan & Prior, Diego & Van de Woestyne, Ignace, 2010. "Tangency capacity notions based upon the profit and cost functions: A non-parametric approach and a general comparison," Economic Modelling, Elsevier, vol. 27(5), pages 1156-1166, September.
    8. Bert Balk & Rolf Färe & Giannis Karagiannis, 2015. "On directional scale elasticities," Journal of Productivity Analysis, Springer, vol. 43(1), pages 99-104, February.
    9. Briec, Walter & Kerstens, Kristiaan, 2009. "The Luenberger productivity indicator: An economic specification leading to infeasibilities," Economic Modelling, Elsevier, vol. 26(3), pages 597-600, May.
    10. Carvalho, Pedro & Marques, Rui Cunha, 2014. "Computing economies of vertical integration, economies of scope and economies of scale using partial frontier nonparametric methods," European Journal of Operational Research, Elsevier, vol. 234(1), pages 292-307.
    11. Chavas, Jean-Paul & Kim, Kwansoo, 2010. "Economies of diversification: A generalization and decomposition of economies of scope," International Journal of Production Economics, Elsevier, vol. 126(2), pages 229-235, August.
    12. repec:eee:touman:v:35:y:2013:i:c:p:278-283 is not listed on IDEAS
    13. Walter Briec & Kristiaan Kerstens & Ignace Van de Woestyne, 2016. "Congestion in production correspondences," Journal of Economics, Springer, vol. 119(1), pages 65-90, September.
    14. 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, vol. 103(3), pages 146-152, March.
    15. Eder, Andreas, 2017. "Cost efficiency and economies of diversification of biogas-fuelled cogeneration plants in Austria: a nonparametric approach," MPRA Paper 80369, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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