IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/80369.html
   My bibliography  Save this paper

Cost efficiency and economies of diversification of biogas-fuelled cogeneration plants in Austria: a nonparametric approach

Author

Listed:
  • Eder, Andreas

Abstract

This paper investigates the existence and the degree of economies of diversification for small-scaled, renewable-fuelled cogeneration systems using 2014 cross-sectional data from 67 Austrian biogas plants. In addition, cost efficiency of those biogas plants is estimated with a non-parametric linear programming technique, known as Data Envelopment Analysis. This is the first study applying the methodology proposed by Chavas and Kim (2010). Economies of diversification are decomposed into three additive parts: a part measuring complementarity among outputs; a part reflecting economies of scale; a part reflecting convexity. Furthermore, this paper extends the decomposition introduced by Chavas and Kim (2010) in such a way that the contribution of each input to economies of diversification and its components can be investigated. The results indicate substantial cost savings from diversification. For very-small scaled plants ( 250 kWel) positive complementarity and convexity effects are the main source of economies of diversification and outweigh the negative effect from scale diseconomies. In addition to substantial fuel/feedstock cost reductions, significant costs saving effects from the jointness in labour and other inputs positively contribute to the complementarity effect. While on average capital and labour costs positively contribute to economies of scale, feedstock costs work in the direction of diseconomies of scale.

Suggested Citation

  • 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.
    • Handle: RePEc:pra:mprapa:80369
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/80369/1/MPRA_paper_80369.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Evan Rawley & Timothy S. Simcoe, 2010. "Diversification, Diseconomies of Scope, and Vertical Contracting: Evidence from the Taxicab Industry," Management Science, INFORMS, vol. 56(9), pages 1534-1550, September.
    2. Jean-Paul Chavas & Bradford Barham & Jeremy Foltz & Kwansoo Kim, 2012. "Analysis and decomposition of scope economies: R&D at US research universities," Applied Economics, Taylor & Francis Journals, vol. 44(11), pages 1387-1404, April.
    3. 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.
    4. Walter Briec & Kristiaan Kerstens & Philippe Venden Eeckaut, 2004. "Non-convex Technologies and Cost Functions: Definitions, Duality and Nonparametric Tests of Convexity," Journal of Economics, Springer, vol. 81(2), pages 155-192, February.
    5. Evans, David S & Heckman, James J, 1984. "A Test for Subadditivity of the Cost Function with an Application to the Bell System," American Economic Review, American Economic Association, vol. 74(4), pages 615-623, September.
    6. Wickart, Marcel & Madlener, Reinhard, 2007. "Optimal technology choice and investment timing: A stochastic model of industrial cogeneration vs. heat-only production," Energy Economics, Elsevier, vol. 29(4), pages 934-952, July.
    7. Andreas Eder & Bernhard Mahlberg, 2018. "Size, Subsidies and Technical Efficiency in Renewable Energy Production: The Case of Austrian Biogas Plants," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    8. Klessmann, Corinna & Held, Anne & Rathmann, Max & Ragwitz, Mario, 2011. "Status and perspectives of renewable energy policy and deployment in the European Union—What is needed to reach the 2020 targets?," Energy Policy, Elsevier, vol. 39(12), pages 7637-7657.
    9. Christian Growitsch & Heike Wetzel, 2009. "Testing for Economies of Scope in European Railways: An Efficiency Analysis," Journal of Transport Economics and Policy, University of Bath, vol. 43(1), pages 1-24, January.
    10. Kwon, Oh Sang & Yun, Won-Cheol, 2003. "Measuring economies of scope for cogeneration systems in Korea: a nonparametric approach," Energy Economics, Elsevier, vol. 25(4), pages 331-338, July.
    11. Jeanneaux, Philippe & Latruffe, Laure, 2016. "Modelling pollution-generating technologies in performance benchmarking: Recent developments, limits and future prospects in the nonparametric frameworkAuthor-Name: Dakpo, K. Hervé," European Journal of Operational Research, Elsevier, vol. 250(2), pages 347-359.
    12. Jeffrey T. Macher, 2006. "Technological Development and the Boundaries of the Firm: A Knowledge-Based Examination in Semiconductor Manufacturing," Management Science, INFORMS, vol. 52(6), pages 826-843, June.
    13. Ashish Arora & Alfonso Gambardella & Laura Magazzini & Fabio Pammolli, 2009. "A Breath of Fresh Air? Firm Type, Scale, Scope, and Selection Effects in Drug Development," Management Science, INFORMS, vol. 55(10), pages 1638-1653, October.
    14. Connolly, D. & Lund, H. & Mathiesen, B.V. & Werner, S. & Möller, B. & Persson, U. & Boermans, T. & Trier, D. & Østergaard, P.A. & Nielsen, S., 2014. "Heat Roadmap Europe: Combining district heating with heat savings to decarbonise the EU energy system," Energy Policy, Elsevier, vol. 65(C), pages 475-489.
    15. Kitzing, Lena & Mitchell, Catherine & Morthorst, Poul Erik, 2012. "Renewable energy policies in Europe: Converging or diverging?," Energy Policy, Elsevier, vol. 51(C), pages 192-201.
    16. Panzar, John C & Willig, Robert D, 1981. "Economies of Scope," American Economic Review, American Economic Association, vol. 71(2), pages 268-272, May.
    17. William W. Cooper & Lawrence M. Seiford & Kaoru Tone, 2006. "Introduction to Data Envelopment Analysis and Its Uses," Springer Books, Springer, number 978-0-387-29122-2, December.
    18. 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.
    19. K Tone, 2002. "A strange case of the cost and allocative efficiencies in DEA," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 53(11), pages 1225-1231, November.
    20. 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.
    21. Berger, Allen N. & Hanweck, Gerald A. & Humphrey, David B., 1987. "Competitive viability in banking : Scale, scope, and product mix economies," Journal of Monetary Economics, Elsevier, vol. 20(3), pages 501-520, December.
    22. 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.
    23. Brandon Pope & Andrew Johnson, 2013. "Returns to scope: a metric for production synergies demonstrated for hospital production," Journal of Productivity Analysis, Springer, vol. 40(2), pages 239-250, October.
    24. Skovsgaard, Lise & Jacobsen, Henrik Klinge, 2017. "Economies of scale in biogas production and the significance of flexible regulation," Energy Policy, Elsevier, vol. 101(C), pages 77-89.
    25. Sahoo, Biresh K. & Mehdiloozad, Mahmood & Tone, Kaoru, 2014. "Cost, revenue and profit efficiency measurement in DEA: A directional distance function approach," European Journal of Operational Research, Elsevier, vol. 237(3), pages 921-931.
    26. Preyra, Colin & Pink, George, 2006. "Scale and scope efficiencies through hospital consolidations," Journal of Health Economics, Elsevier, vol. 25(6), pages 1049-1068, November.
    27. Paul, Catherine J. Morrison & Nehring, Richard, 2005. "Product diversification, production systems, and economic performance in U.S. agricultural production," Journal of Econometrics, Elsevier, vol. 126(2), pages 525-548, June.
    28. G. Thomas Sav, 2004. "Higher education costs and scale and scope economies," Applied Economics, Taylor & Francis Journals, vol. 36(6), pages 607-614.
    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. Bedoić, Robert & Jurić, Filip & Ćosić, Boris & Pukšec, Tomislav & Čuček, Lidija & Duić, Neven, 2020. "Beyond energy crops and subsidised electricity – A study on sustainable biogas production and utilisation in advanced energy markets," Energy, Elsevier, vol. 201(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Eder, Andreas, 2018. "Measuring and decomposing economies of diversification: An application to biogas-fuelled cogeneration plants in Austria," International Journal of Production Economics, Elsevier, vol. 204(C), pages 421-432.
    2. Brandon Pope & Andrew Johnson, 2013. "Returns to scope: a metric for production synergies demonstrated for hospital production," Journal of Productivity Analysis, Springer, vol. 40(2), pages 239-250, October.
    3. Andreas Eder & Bernhard Mahlberg & Bernhard Stürmer, 2021. "Measuring and explaining productivity growth of renewable energy producers: An empirical study of Austrian biogas plants," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 48(1), pages 37-63, February.
    4. Malikov, Emir & Hartarska, Valentina, 2018. "Endogenous scope economies in microfinance institutions," Journal of Banking & Finance, Elsevier, vol. 93(C), pages 162-182.
    5. Zhang, Jingfang & Malikov, Emir, 2022. "Off-balance sheet activities and scope economies in U.S. banking," Journal of Banking & Finance, Elsevier, vol. 141(C).
    6. Zhang, Jingfang & Hartarska, Valentina & Malikov, Emir, 2021. "Product and geographic market diversification in U.S. banking," Finance Research Letters, Elsevier, vol. 42(C).
    7. 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.
    8. Kwansoo Kim & Donghwan An, 2015. "Nonparametric Evaluation of Economies of Scope in the Context of Technical Efficiency: The Case of Rice and Vegetable Farms in Korea," Asian Economic Journal, East Asian Economic Association, vol. 29(3), pages 285-301, September.
    9. Mydland, Ørjan & Kumbhakar, Subal C. & Lien, Gudbrand & Amundsveen, Roar & Kvile, Hilde Marit, 2020. "Economies of scope and scale in the Norwegian electricity industry," Economic Modelling, Elsevier, vol. 88(C), pages 39-46.
    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. Michael Freeman & Nicos Savva & Stefan Scholtes, 2021. "Economies of Scale and Scope in Hospitals: An Empirical Study of Volume Spillovers," Management Science, INFORMS, vol. 67(2), pages 673-697, February.
    12. Robert M. Adams & Paul W. Bauer & Robin C. Sickles, 2002. "Scope and scale economies in Federal Reserve payment processing," Working Papers (Old Series) 0213, Federal Reserve Bank of Cleveland.
    13. repec:ags:aaea22:335439 is not listed on IDEAS
    14. Chavas, Jean-Paul & Barham, Bradford, 2007. "On the Microeconomics of Diversification under Uncertainty and Learning," Staff Paper Series 515, University of Wisconsin, Agricultural and Applied Economics.
    15. Liang-Cheng Zhang & Andrew C. Worthington, 2018. "Explaining Estimated Economies of Scale and Scope in Higher Education: A Meta-Regression Analysis," Research in Higher Education, Springer;Association for Institutional Research, vol. 59(2), pages 156-173, March.
    16. Berger, Allen N. & Cummins, J. David & Weiss, Mary A. & Zi, Hongmin, 2000. "Conglomeration versus Strategic Focus: Evidence from the Insurance Industry," Journal of Financial Intermediation, Elsevier, vol. 9(4), pages 323-362, October.
    17. Sahoo, Biresh K. & Tone, Kaoru, 2013. "Non-parametric measurement of economies of scale and scope in non-competitive environment with price uncertainty," Omega, Elsevier, vol. 41(1), pages 97-111.
    18. Malikov, Emir & Hartarska, Valentina & Mersland, Roy, 2020. "Economies of diversification in microfinance: Evidence from quantile estimation on panel data," Finance Research Letters, Elsevier, vol. 34(C).
    19. Blancard, Stéphane & Boussemart, Jean-Philippe & Chavas, Jean-Paul & Leleu, Hervé, 2016. "Potential gains from specialization and diversification further to the reorganization of activities," Omega, Elsevier, vol. 63(C), pages 60-68.
    20. Alem, Habtamu1 & Lien, Gudbrand1 & Kumbhakar, Subal C1 & Hardaker, J. Brian, 2017. "Economies Of Scale And Scope In The Norwegian Agriculture," 2017 International Congress, August 28-September 1, 2017, Parma, Italy 260907, European Association of Agricultural Economists.
    21. Barnabé Walheer, 2020. "Output, input, and undesirable output interconnections in data envelopment analysis: convexity and returns-to-scale," Annals of Operations Research, Springer, vol. 284(1), pages 447-467, January.

    More about this item

    Keywords

    Data Envelopment Analysis; Economies Scale; Economies of Scope; Renewable Energy Sources; Energy Efficiency;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • Q16 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - R&D; Agricultural Technology; Biofuels; Agricultural Extension Services
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:pra:mprapa:80369. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.