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Economies Of Size And Operating Efficiency Of Livestock Markets: A Frontier Function Approach

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  • Lesser, William H.
  • Greene, W. H.

Abstract

A cost curve for livestock auction markets was estimated using a frontier function estimator. This estimator has the advantages of consistency and asymptotic efficiency (for certain disturbance specifications). The one-sided residuals satisfy theoretical requirements for cost curves and allow estimates of operational efficiency. Results indicate little size savings above 50,000 LMU, (12 percent of markets in 1976). Estimated operational inefficiencies ranged from 0 to 45 percent. Total technical efficiency (size diseconomies plus operational inefficiencies) are high for some markets and some size groups. Little consolidation is predicted for the industry because the estimated cost of technical inefficiency is small compared to distance related costs (e.g., transport and shrink).

Suggested Citation

  • Lesser, William H. & Greene, W. H., 1980. "Economies Of Size And Operating Efficiency Of Livestock Markets: A Frontier Function Approach," Journal of the Northeastern Agricultural Economics Council, Northeastern Agricultural and Resource Economics Association, vol. 9(1), pages 1-4, April.
    • Handle: RePEc:ags:nareaj:159446
    DOI: 10.22004/ag.econ.159446
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    References listed on IDEAS

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    1. French, Ben C., 1977. "The Analysis of Productive Efficiency in Agricultural Marketing: Models, Methods, and Progress," A Survey of Agricultural Economics Literature, Volume 1: Traditional Fields of Agricultural Economics 1940s to 1970s,, Agricultural and Applied Economics Association.
    2. Buccola, Steven T. & Polishuk, Leonard M., 1979. "Cost Structures In Livestock Auction Markets: Average Versus Optimal Efficiency," Northeastern Journal of Agricultural and Resource Economics, Northeastern Agricultural and Resource Economics Association, vol. 0(Number 2), pages 1-10, October.
    3. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
    4. Buccola, Steven T. & Polishuk, Leonard M., 1979. "Cost Structures In Livestock Auction Markets: Average Versus Optimal Efficiency," Journal of the Northeastern Agricultural Economics Council, Northeastern Agricultural and Resource Economics Association, vol. 8(2), pages 1-10, October.
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    1. Spielman, Kimberly & Whipple, Glen & McLemore, Dan, 1982. "Estimation Of A Long Run Average Cost Curve Using A Frontier Function: An Application To The Tennessee Livestock Auction Market Industry," 1982 Annual Meeting, August 1-4, Logan, Utah 279185, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. McLemore, Dan L. & Whipple, Glen D. & Spielman, Kimberly, 1983. "Ols And Fronteir Function Estimates Of Long-Run Average Cost For Tennessee Livestock Auction Markets," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 15(2), pages 1-5, December.
    3. Bravo-Ureta, Boris E., 1983. "Non-Parametric Measures of Technical Efficiency in Milk Production," Journal of the Northeastern Agricultural Economics Council, Northeastern Agricultural and Resource Economics Association, vol. 12(2), pages 1-8.

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