Agglomeration Economies as Manifested in Technical Efficiency at the Firm Level

This paper makes an attempt to assess the significance of agglomeration economies in the case of two Indian industries, electrical machinery and cotton and cotton textiles. Using firm level data, an efficiency index based on a statistical stochastic frontier model is generated to examine its relationship with external scale variable(s). A positive association between technical efficiency and city size is evident although after a certain threshold level city size works more as diseconomies than economies of scale. Undue emphasis on industrial dispersal may, therefore, lead to suboptimal utilisation of resources.     

Economies of scale and market power in policing

The objective of this paper is to use a simultaneous equations method for estimating police production and demand to determine whether or not there are economies of scale in policing. In addition, the effect of market power on productivity, using the Herfindahl–Hirschmann Index, is to be measured. The estimation yields the result that there are diseconomies of scale with respect to the amount of crime beyond about 22 000 people in the policing jurisdiction and diseconomies of scale in numbers of police beyond about 36 000 people. Efficiency is also reduced where there is greater market power. This is conjectured to be the public sector equivalent of taking market power profits. Copyright © 2005 John Wiley & Sons, Ltd.     

Economies of scale and scope in water supply

This study examines the multiproduct nature of water supply relative to economies of scale and scope. The water utility is viewed as a multiproduct firm providing residential and non- residential services with spatial variation. There are no significant economies of scale in the utility's overall operation. The utility, however, enjoys considerable economies for non- residential water supply but suffers from diseconomies in residential supply. The economies of scale achieved in water treatment are mostly lost in the distribution of water. The utility on the whole experiences economies of scope associated with joint production of the two services. Furthermore, water utilities have no perceptible tendency to behave as a natural monopoly.     

Costs, Institutional Mobility Barriers, and Market Structure: Advertising Agencies as Multiproduct Firms

What accounts for the diversity and limited concentration that has long characterized the organization of the advertising agency industry? This question is addressed by treating an advertising agency as a multiproduct firm. The firm's product line or service mix is defined in terms of the set of different media categories where an agency places the advertising messages that it creates on behalf of its clients. Evidence is presented indicating that the structure of demand and costs in the advertising agency industry conforms to the conditions that MacDonald and Slivinski showed were required for an industry to sustain an equilibrium with diversified firms. Building on this framework, we formulate a set of three hypotheses relating to the realization of product-specific scale and scope economies. The first two hypotheses posit that given low fixed costs and minimal entry barriers, both media-specific scale and scope economies are available and can be exploited by relatively small-size agencies. The third hypothesis suggests that large agencies may experience diseconomies of scope as a consequence of excessive diversification induced by two pervasive industry institutional phenomena: (1) “bundling” of agency services to match client demand for a mix of media advertising, and (2) “conflict policy,” which prohibits an agency from serving competing accounts and operates as a mobility constraint. Utilizing a multiproduct cost function, we estimate media-specific scale and scope economies for a cross section of 401 U.S. agencies in 1987. The results obtained support the set of three hypotheses outlined above. The paper concludes with a discussion of the implications of these findings for the restructuring currently underway in this industry.     

Efficiency in the provision of university teaching and research: An empirical analysis of UK universities

A flexible three-output, two-input cost function model is used to examine the cost efficiency of UK universities as producers of teaching and research ‘outputs’. Unlike previous studies, a comprehensive peer review of research quality is incorporated. Overall, product-specific and input-specific economies of scale, global and product-specific economies of scope, marginal costs and cost complementarities are estimated. Overall and product-specific scale results indicate considerable increasing returns, while the scope results generally suggest neither economies nor diseconomies. Sensitivity analysis is used to simulate the impact of current government policy, regarding the expansion of undergraduate teaching output, on these results.     

Economies of scale in the Mexican automotive sector

Recent growth of the Mexican motor vehicle industry has sparked a great deal of controversy on both sides of the U.S.-Mexico border regarding the potential effects of the North American Free Trade Agreement. One of the key factors affecting the future competitiveness of the Mexican motor vehicle industry relative to U.S. producers is whether the Mexican firms can exploit economies of scale as their output expands. This article investigates that possibility as well as the direct and cross-price elasticities of demand for the inputs by estimating translog cost functions for the Mexican motor vehicle and autoparts industries. The results are consistent with the hypotheses that substantial economies of scale remain to be exploited by the Mexican motor vehicle industry, but that the autoparts industry is operating with diseconomies of scale. However, the lack of investment in new technology and X-inefficiency on the part of the autoparts firms may have been partially responsible for the latter finding.     

Scale and scope economies of Japanese private universities revisited with an input distance function approach

This paper examines the scale and scope economies of higher education institutions in Japan assuming the presence of productive inefficiency. The standard approach to testing the scope economies is to apply the cost function. However, the cost function approach often entails the difficulty of obtaining reliable data on input prices, especially the input prices of capital for higher education institutions. This paper proposes a duality approach based on the input distance function. The scope economies are tested under a necessary and sufficient condition by retrieving the costs of joint and separate production from the input distance function. We apply the testing procedure to data pertaining to 218 Japanese private universities in 1999 and 2004. The results indicate the scale economies and the scope diseconomies.     

产业集群的集聚机理分析

产业集群是当代区域发展的重要经济模式,其集聚效应带动了集群地区经济的发展。针对目前我国产业集群的现状,从产业集群集聚机理出发,通过探讨分析产业集群的规模经济性,规模不经济性以及产业集群外在的正负经济性对产业集群的集聚效应进行分析。     

Economic efficiency of multi-product structure: the evidence from Korean housebuilding firms

The Korean housebuilding industry has been subject to structural changes since the 1980s. One of the key features is that housebuilding firms have become diversified into a range of businesses and as a result display multi-product structure. This paper examines the efficiency of the multi-product structure of Korean housebuilding firms. For the analysis, translog cost functions were estimated using data for 201 building firms for the 3 years 1993–1995. The empirical results indicate that medium-size building firms enjoy increasing returns to scale, whereas large firms experience constant returns to scale. Korean building firms exhibit significant economies of scope in their diversification activities. Large firms have the greatest economies of scope. These results are consistent with cost efficiency for the multi-product structure of Korean housebuilding firms. The estimated optimum scale suggests that many large firms should expand only through diversification.     

Efficient growth of an agglomerating regional economy

The focus of this study is on the efficient investment policy to be pursued by a regional or local economy, respectively. Localness will be expressed in terms of varying returns to scale which are due to economies and diseconomies of agglomeration. This particular setting of regional growth enters into a neoclassical calculus of variations model of intertemporal capital stock maximization. The general properties significant of efficient growth strategies relate to the turnpike discussion. A unique set of maximum balanced expansion paths will be proved to serve as the only guideline for efficient investment in the long run.     

Production management, output volatility, and good luck

This paper models the scale of the technology shocks as a decision variable whose value is determined by the production manager. It is shown that smaller shocks enhance profit in several ways and thus the firm has an incentive to adopt more reliable production technologies. The adoption of these technologies may account for the “good luck” hypothesis in which the stabilization of Gross Domestic Product (GDP) since 1984 is attributed to smaller shocks. It differs from this hypothesis in two respects. First, the reduced volatility should be permanent. Second, the stabilization does not require smaller intrinsic shocks to the economy.     

SCALE ECONOMIES OF THE FRANCHISED BUSES AND FERRIES OF HONG KONG, 1948–1998

The privatization of state transport operators has been driven by empirical discoveries in transport economic research of the constant or even diseconomies of scale of these operators. With reference to public records and official statistics, this paper is an initial attempt to examine the scale economies of and output relationship between major bus and ferry operators in Hong Kong during the period 1948–1998. The two franchised bus and two franchised ferry companies each experienced unique scale effects during different periods and correlated with each other in terms of production. The paper will also discuss the possible reasons for this phenomenon and policy concerns related to this finding.     

Water losses and hydrographical regions influence on the cost structure of the Portuguese water industry

Despite the growing research about water utilities, some questions still remain to be solved on the supply side, which are frequently absent from empirical studies based on the estimation of cost functions. This paper aims to fill to some extent this gap in the literature by focusing the consequences of water losses reduction and the management of water resources based on their availability at an integrated river basin level. Major findings derived from the estimation of a multiproduct cost function suggest advantages from reducing water losses, given that an adjusted measure of economies of scope, adapting the fact that water lost cannot be sold, reveals that there are small diseconomies of scope. In addition, generally the variables related to the hydrographical regions used have significant effects on water costs. Since the outcomes also reveal the existence of economies of scale, more concentration in the Portuguese water industry at the retail level would be beneficial.     

Analysis of Hospital Production: An Output Index Approach

In this study, we develop and implement an output index approach to the estimation of hospital cost functions that reflects the differentiated nature of hospital care. The approach combines the estimation of an output index within a flexible functional form. We find, in an application to California hospitals, evidence of scope economies across specialties within primary care, and diseconomies of scope within secondary and tertiary care. Minimum efficient scale is reached at larger levels of output than would be estimated by conventional techniques. These results indicate the importance of accounting for firm output heterogeneity when estimating cost functions. Copyright © 2014 John Wiley & Sons, Ltd.     

Scale Efficiency in Canadian Trust Companies

A new method for estimating a relative scale function is derived which does not require the specification or estimation of the firm's cost function. The method is applied to a panel of Canadian trust companies for the years 1985–1988. Results show that the industry scale function is convex with respect to firm size, as measured by the firm's assets. The method avoids a number of shortcomings associated with traditional studies of scale economies in financial institutions.     

Technology and Cost Efficiency in Universal Banking A “Thick Frontier”-Analysis of the German Banking Industry

Using 1992 data of 1490 banks covering about 40% of German banking, we specify a multi-product translog cost function and follow the thick frontier-approach to control for cost inefficiency when evaluating the technology of banking. Scale economies are found to exist up to a size of about 5 billion DM of total assets, with diseconomies being caused by non-operating costs. There is hardly any evidence of economies of scope. Compared to cost inefficiency external factors play a surprisingly strong role in explaining cost differences between high-cost and low-cost banks. Smaller banks turn out to be more responsive to input prices.     

Aspects of growth in a system of cities

This paper explores and develops the modeling of growth in a system of cities in two alternative settings. First, we examine a large growing economy with a fully developed system of cities with perfectly malleable private and public capital. Local scale economies in production and diseconomies in consumption in equilibrium offset each other at the margin so that from a national point of view we have a constant returns to scale economy. We show that at the steady state the number of cities grows exponentially at the rate of growth of the population. We then examine the impact of technological change, considering a case where public capital is not perfectly malleable. In the second setting, we consider the problem of growth for a small economy and discuss problems associated with the transition to the steady state. We modify the previous model to describe a system of cities that is just starting to develop. Investment in public infrastructure capital is subject to sharp indivisibilities and as a result new cities are built at discrete points in time.     

Cost efficiency of Slovenian water distribution utilities: an application of stochastic frontier methods

This study estimates cost inefficiency and economies of scale of Slovenian water distribution utilities over the 1997–2003 period by employing several different stochastic frontier methods. The results indicate that significant cost inefficiencies are present in the utilities. An introduction of incentive-based price regulation scheme might help resolve this problem. However, the inefficiency scores obtained from different cost frontier models are not found to be robust. The levels of inefficiency estimates as well as the rankings depend on the econometric specification of the model. The established lack of robustness can be at least partly explained by different ability of the models to separate unobserved heterogeneity from inefficiency. Newly proposed true fixed effects model (Greene, J Econom 126:269–303, 2005; J Prod Anal 23(1):7–32, 2005) appears to perform better than the conventional panel data models with respect to distinguishing between unobserved heterogeneity and inefficiency. On the other hand, different models produce fairly robust results with respect to estimates of economies of output density, customer density and economies of scale. The optimal size of a company is found to closely corresponds to the sample median. Economies of scale are found in small-sized utilities, while large companies exhibit diseconomies of scale.

Assessing the efficiency of Turkish secondary education: Heterogeneity, centralization, and scale diseconomies

This paper begins with a historical overview of the Turkish educational system. We then use Data Envelopment Analysis (DEA) and econometric methods to evaluate the system's efficiency. In doing so we identify scale diseconomies and relate them to underlying structural characteristics of the system. Selected suggestions on improving performance are offered. The roles of heterogeneity and centralization are also highlighted. Heterogeneity is modeled as an undesirable measure. The linkage between indicators of centralization and scale diseconomies was found to be statistically significant. The authors believe this to be the first study that investigates the impact of systemic characteristics such as heterogeneity and centralized structure on educational outcomes for Turkey. Since the country straddles the Middle East and the Balkans, culturally as well as geographically, it may be of interest to other countries in the region.     

On the location of knowledge-intensive entrepreneurship in developing countries: lessons from São Paulo,Brazil

This article empirically appraises the geographical distribution of knowledge-intensive entrepreneurship (KIE) in the settings of an emerging economy. We start from the typical agglomeration approach and then introduce a set of variables related to local market conditions, distance from the economic hub, and knowledge & innovation system to explain KIE location and density on the basis of city-level data in the State of São Paulo, Brazil. Findings indicate KIE concentration in and around a few urban areas, providing support to agglomeration economies concepts. There is strong evidence that the local presence of research-oriented universities, access to capital, and business concentration are correlated to KIE emergence and density. Results also indicate the moderating effect of agglomeration diseconomies mainly related to factors of rapid and anarchic expansion of urban centers and the consequences of extreme inequalities in income distribution. This challenges the usability of concepts of entrepreneurial ecosystems from advanced economies if not adapted to the realities of developing countries.