IDEAS home Printed from https://ideas.repec.org/p/qld/uqcepa/22.html
   My bibliography  Save this paper

A Dual Measure of Economies of Scope

Author

Abstract

Information on the economies of scope (or cost complementarities) between two or more output variables is traditionally obtained from the second derivative properties of an econometrically estimated multi-output cost function. However, in some instances the econometric estimation of a cost function may not be viable, because cost or input price data are not readily available or because the assumption of cost minimising behaviour is not appropriate in the industry at hand, perhaps due to government ownership or regulatory controls. In this paper we address this issue by utilising the duality between the cost and input distance functions in deriving an expression for a measure of economies of scope in terms of the derivatives of an input distance function. We derive expressions for the special cases of the CES and translog functional forms, and then provide an empirical illustration using sample data on Australian aged care facilities, an industry which is currently undergoing a major pricing and regulatory review. Our empirical results indicate that there is some evidence for existence of economies of scope between high care and low care patients, a result which is of particular interest to policy makers in this industry.

Suggested Citation

  • Gholamreza Hajargasht & Tim Coelli & D. S. Prasada Rao, 2006. "A Dual Measure of Economies of Scope," CEPA Working Papers Series WP032006, School of Economics, University of Queensland, Australia.
  • Handle: RePEc:qld:uqcepa:22
    as

    Download full text from publisher

    File URL: http://www.uq.edu.au/economics/cepa/docs/WP/Hazarghasht_WP03_06.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hanoch, Giora, 1975. "The Elasticity of Scale and the Shape of Average Costs," American Economic Review, American Economic Association, vol. 65(3), pages 492-497, June.
    2. O'Donnell, Christopher J. & Coelli, Timothy J., 2005. "A Bayesian approach to imposing curvature on distance functions," Journal of Econometrics, Elsevier, vol. 126(2), pages 493-523, June.
    3. Rezvanian, Rasoul & Mehdian, Seyed, 2002. "An examination of cost structure and production performance of commercial banks in Singapore," Journal of Banking & Finance, Elsevier, vol. 26(1), pages 79-98, January.
    4. Songqing Jin & Scott Rozelle & Julian Alston & Jikun Huang, 2005. "Economies Of Scale And Scope And The Economic Efficiency Of China'S Agricultural Research System," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 1033-1057, August.
    5. David N. Laband & Bernard F. Lentz, 2003. "New Estimates of Economies of Scale and Scope in Higher Education," Southern Economic Journal, Southern Economic Association, vol. 70(1), pages 172-183, July.
    6. Harry Bloch & Gary Madden & Scott Savage, 2001. "Economies of Scale and Scope in Australian Telecommunications," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 18(2), pages 219-227, March.
    7. Catherine J. Morrison Paul & Warren E. Johnston & Gerald A. G. Frengley, 2000. "Efficiency in New Zealand Sheep and Beef Farming: The Impacts of Regulatory Reform," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 325-337, May.
    8. Atkinson, Scott E. & Primont, Daniel, 2002. "Stochastic estimation of firm technology, inefficiency, and productivity growth using shadow cost and distance functions," Journal of Econometrics, Elsevier, vol. 108(2), pages 203-225, June.
    9. Jim Griffin & Mark Steel, 2007. "Bayesian stochastic frontier analysis using WinBUGS," Journal of Productivity Analysis, Springer, vol. 27(3), pages 163-176, June.
    10. Ivaldi, M & McCullough, G J, 2001. "Density and Integration Effects on Class I U.S. Freight Railroads," Journal of Regulatory Economics, Springer, vol. 19(2), pages 161-182, March.
    11. Charles Blackorby & R. Robert Russell, 1981. "The Morishima Elasticity of Substitution; Symmetry, Constancy, Separability, and its Relationship to the Hicks and Allen Elasticities," Review of Economic Studies, Oxford University Press, vol. 48(1), pages 147-158.
    12. Coelli, Tim & Fleming, Euan, 2004. "Diversification economies and specialisation efficiencies in a mixed food and coffee smallholder farming system in Papua New Guinea," Agricultural Economics, Blackwell, vol. 31(2-3), pages 229-239, December.
    13. Panzar, John C & Willig, Robert D, 1981. "Economies of Scope," American Economic Review, American Economic Association, vol. 71(2), pages 268-272, May.
    14. Takanori Ida & Tetsuya Kuwahara, 2004. "Yardstick Cost Comparison and Economies of Scale and Scope in Japan's Electric Power Industry," Asian Economic Journal, East Asian Economic Association, vol. 18(4), pages 423-438, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. A. Wondemu Kifle, 2016. "Working Paper 237 - Decomposing Sources of Productivity Change in Small-Scale Farming in Ethiopia," Working Paper Series 2332, African Development Bank.
    2. Maria Olivares & Heike Wetzel, 2014. "Editor's Choice Competing in the Higher Education Market: Empirical Evidence for Economies of Scale and Scope in German Higher Education Institutions," CESifo Economic Studies, CESifo, vol. 60(4), pages 653-680.
    3. Nonthakot, Phanin & Fleming, Euan M. & Villano, Renato A., 2008. "An Assessment of the Impact of Strategic Alliances in Food Processing on the Technical Efficiency of Housewives Groups in Thailand," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44411, European Association of Agricultural Economists.
    4. Renner, Swetlana & Glauben, Thomas & Hockmann, Heinrich, 2012. "Measurement And Decomposition Of Flexibility Of Multi-Output Firms," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 124865, International Association of Agricultural Economists.
    5. Singbo, Alphonse G. & Emvalomatis, Grigorios & Alfons, Oude Lansink, 2013. "Assessing the impact of crop specialization on farms’ performance in vegetables farming in Benin: a non-neutral stochastic frontier approach," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 149172, Agricultural and Applied Economics Association.
    6. Jiro Nemoto & Noriko Furumatsu, 2014. "Scale and scope economies of Japanese private universities revisited with an input distance function approach," Journal of Productivity Analysis, Springer, vol. 41(2), pages 213-226, April.
    7. 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.
    8. Renner, Swetlana & Hockmann, Heinrich & Glauben, Thomas, 2011. "Measuring flexibility of multi-output firms: a primal and a dual measure," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114797, European Association of Agricultural Economists.
    9. Maria Olivares & Heike Wetzel, 2011. "Competing in the Higher Education Market: Empirical Evidence for Economies of Scale and Scope in German Higher Education Institutions," Economics of Education Working Paper Series 0070, University of Zurich, Department of Business Administration (IBW).
    10. Swetlana Renner & Thomas Glauben & Heinrich Hockmann & Pierre Ouellette, 2015. "Primal and dual multi-output flexibility measures," Journal of Productivity Analysis, Springer, vol. 44(2), pages 127-136, October.
    11. Ofori-Bah, Adeline & Asafu-Adjaye, John, 2011. "Scope economies and technical efficiency of cocoa agroforesty systems in Ghana," Ecological Economics, Elsevier, vol. 70(8), pages 1508-1518, June.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:qld:uqcepa:22. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (SOE IT). General contact details of provider: http://edirc.repec.org/data/decuqau.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.