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Scope economies: fixed costs, complementarity, and functional form

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  • David B. Humphrey
  • Lawrence B. Pulley

Abstract

Bank scope economies have been derived from either the standard or generalized (Box-Cox) multiproduct translog (or other logarithmic) functional form. Reported results have ranged from strong economies to diseconomies and are far from conclusive. The problem is functional form. An alternative composite form is shown to yield stable SCOPE results both at the usual point of evaluation and for points associated with quasi-specialized production (QSCOPE). Unstable results are obtained for the other forms. Scope economies are shown to exist for large U.S. banks in 1988 and to depend on the number of banking outputs specified. The scope estimates are also separated into their two sources - fixed-cost and cost-complementarity effects.

Suggested Citation

  • David B. Humphrey & Lawrence B. Pulley, 1991. "Scope economies: fixed costs, complementarity, and functional form," Working Paper 91-03, Federal Reserve Bank of Richmond.
    • Handle: RePEc:fip:fedrwp:91-03
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    References listed on IDEAS

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