Are all scales optimal in Dea? Theory and empirical evidence
Policy recommendations concerning optimal scale of production units often have serious implications for the restructuring of a sector, while tests of natural monopoly have important implications for regulatory structure. The piecewise linear frontier production function framework is becoming the most popular one for assessing not only technical efficiency of operations, but also for scale efficiency and calculation of optimal scale sizes. The main purpose of the present study is to check if neoclassical production theory gives any guidance as to the nature of scale properties in the DEA model, and to empirically investigate such properties. The empirical results indicate that optimal scale may be found over almost the entire size variations in outputs and inputs, thus making policy recommendations about scale efficiency dubious. It is necessary to establish the nature of optimal scale before any practical use can be made. Proposals for such indexes that should be calculated are provided.
|Date of creation:||Feb 2002|
|Contact details of provider:|| Postal: Corso Unione Sovietica, 218bis - 10134 Torino - Italy|
Phone: +39 011 6706060
Fax: +39 011 6706062
Web page: http://www.esomas.unito.it/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- McFadden, Daniel, 1978. "Cost, Revenue, and Profit Functions," Histoy of Economic Thought Chapters, in: Fuss, Melvyn & McFadden, Daniel (ed.), Production Economics: A Dual Approach to Theory and Applications, volume 1, chapter 1 McMaster University Archive for the History of Economic Thought.
- 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.
- Banker, R. D. & Bardhan, I. & Cooper, W. W., 1996. "A note on returns to scale in DEA," European Journal of Operational Research, Elsevier, vol. 88(3), pages 583-585, February.
- Banker, Rajiv D., 1984. "Estimating most productive scale size using data envelopment analysis," European Journal of Operational Research, Elsevier, vol. 17(1), pages 35-44, July.
- Hjalmarsson, Lennart & Veiderpass, Ann, 1992. " Productivity in Swedish Electricity Retail Distribution," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(0), pages 193-205, Supplemen.
- Hanoch, Giora, 1970. "Homotheticity in joint production," Journal of Economic Theory, Elsevier, vol. 2(4), pages 423-426, December.
- John C. Panzar & Robert D. Willig, 1977. "Economies of Scale in Multi-Output Production," The Quarterly Journal of Economics, Oxford University Press, vol. 91(3), pages 481-493.
- Starrett, David A, 1977. "Measuring Returns to Scale in the Aggregate, and the Scale Effect of Public Goods," Econometrica, Econometric Society, vol. 45(6), pages 1439-1455, September.
- Simar, Leopold & Wilson, Paul W., 2002. "Non-parametric tests of returns to scale," European Journal of Operational Research, Elsevier, vol. 139(1), pages 115-132, May.
- N/A, 1996. "Note:," Foreign Trade Review, , vol. 31(1-2), pages 1-1, January.
- Jamasb, T. & Pollitt, M., 2000. "Benchmarking and regulation: international electricity experience," Utilities Policy, Elsevier, vol. 9(3), pages 107-130, September.
- Kim, H Youn, 1987. "Economies of Scale in Multi-product Firms: An Empirical Analysis," Economica, London School of Economics and Political Science, vol. 54(214), pages 185-206, May.