Estimating Scale and Scope Economies with Fourier Flexible Functional Form – Evidence from Taiwan's Banking Industry

In this study the scale and scope economies for Taiwan's banking sector using panel data from 22 domestic banks for the period 1981–1997 is investigated quantitatively using both a Fourier flexible functional form, first proposed by Gallant (1981, 1982), and a translog function. This study's results favour the use of the former, based on tests of regression coefficients and on estimates of various economy measures. The Fourier evidence shows that only smaller banks exhibit increasing returns to scale, while larger banks exhibit decreasing returns to scale. Conversely, the translog indicates that all the sample groups continue to enjoy economies of scale. Banks in Taiwan exhibit scope diseconomies, which suggest that sample banks should continue efforts to diversify their financial products, which in turn could substantially reduce their average costs.     

Economies of Scale in Australian Banks 1978–1990

This paper examines economies of scale in Australian banks. A bank multi-product cost function is estimated using a translog functional form with data drawn from twelve banks spanning the period 1978 to 1990. Different formulations of the model are estimated. Results prove sensitive to estimation assumptions and data definitions however they support the presence of economies of scale for Australian banking in this period     

Choice of the empirical definition of zero in the translog multiproduct cost functional form

The translog cost function is valuable to researchers for empirical analysis in themodelling of indirect cost and profit functions. A flaw of the functional form is in themodelling of zero output values. This study examined the impacts of empirical definition of zero output values on price elasticities, economies of scope and scale, using the translog cost function. Estimation of a system of cost and factor share equations with regularity condition imposed was conducted. Results show that the choice of default values affects policy recommendations.     

Cost structure,technological change,and productivity growth in the greek banking sector

This paper first empirically investigates the cost structure of the Greek banking sector. Secondly, it provides measures of economies (diseconomies) of scale and quantifies technical change and its sources. Finally, this paper measures total factor productivity growth and identifies its sources. Bank production is presented with two different approaches (the intermediation and the production approach) which are used to specify a translog cost function. The two different translog cost models are estimated through the full information maximum likelihood method of estimation on pooled time series and cross sectional data. The results obtained are not significantly affected by model specification. Both models indicate significant economies of scale and negative annual rates of growth in technical change and in total factor productivity.     

A Parametric Estimation of Bank Efficiencies Using a Flexible Profit Function with Panel Data

This paper generalises Kumbhakar's (1996a) single product shadow profit function to a multiproduct one, which in contrast to Berger, Hancock, and Humphrey (1993) is consistent with a firm's profit maximising behaviour. By estimating a parametric translog profit function, which does not require special assumptions about the error distribution, and using panel data from Taiwan's banking industry, the following conclusions can be drawn: (i) Parameter estimates from the translog functional form are more robust than those from the Fuss (non-logarithmic) form. (ii) More than half of all potential variable profits are found to be lost due to inefficiencies. (iii) Greater reduction in profit results from deficient output revenues than from a suboptimal input mix. (iv) The model finds technical progress during the sample period. (v) A type of 'weakly' optimal scope economies is detected, which suggests that the joint production of the two products can increase profits for some banks while not hurting the profits of others.     

Estimation des Économies D'échelle et de gamme dans de petites coopératives de services financiers: le cas des caisses populaires acadiennes

This study uses accounting data stemming from 80 credit unions affiliated to the "Fédération des caisses populaires acadiennes" to estimate a multi-product translog cost function with the aim to test for the presence of scale and scope economies. The cost model relies on the production approach and the financial services are gathered in four categories of products. The model is completed by three inputs and one control variable, the latter being used to capture the heterogeneity of costs arising from the average wealth of membership. Since the estimated output elasticity of the total cost, 0.89, is statistically less than one, the models detect quite important scale economies. As to scope economies, they are present but the coefficients are weakly significant.     

Economies of scale and scope in Flemish secondary schools

This study estimates a multiproduct translog cost function for the entire population of 1011 Flemish secondary schools in order to determine the degree of ray and product specific (dis)economies of scale as well as the degree of (dis)economies of scope. Three types of schools and seven major study fields can be distinguished. Student loads in these study fields are used as outputs produced by the schools. Evidence is found for ray economies of scale for the three types of schools, even at output levels of 300% of the actual means. Although the cost elasticities of six out of seven outputs are close to zero, most of the values indicating the degree of product specific economies of scale are negative (suggesting diseconomies of scale). However, this can be explained by the considerable scope effects which are incorporated in the definition of the product specific economies of scale.     

A Fourier analysis of the US dairy industry

Measurement of economies of scale and scope is particularly important for predicting growth and product diversification. However, estimates are useful only to the extent the underlying production technology is modelled accurately. This study measures economies of scale and scope in the rapidly changing US dairy industry with a Fourier flexible cost function, which provides a global approximation of the unknown function. We use the high quality national Agricultural and Resource Management Survey (ARMS) survey data. We find economies of scale at most firm sizes and persistent economies of scope across firm sizes in this industry, which is counter to estimates from two Diewert‐flexible functional forms.     

Cost structure,productivity and efficiency of the Italian public higher education industry 2001–2011

In this paper, I analyze the cost structure of the Italian higher education system for the decade between 2001 and 2011, by means of a stochastic translog cost function. I suggest that the judgment about the optimal configuration of the sector is strongly dependent upon the policy priorities set by decision makers. When assuming that the universities’ output is the number of students, scale economies are exhausted, and marginal costs are relatively low; when considering graduates as outputs instead, there is opportunity for increasing the scale of operations. Inefficiency affects production in a sensible manner, especially when assuming that the target output is the number of graduates. Moreover, efficiency contributes to explaining a relevant portion of the productivity increases in the period. No significant scope economies between teaching and research emerge, suggesting that a higher degree of universities’ specialization can be a direction for improving the sector’s efficiency and productivity.     

Supervision and cost efficiency in banking

This paper suggests a link between bank operating efficiency and federal supervisor. Since supervisory priorities can vary by the context in which the supervisor was conceived, resulting differences in supervisory policies and procedures may underlay differences in the operating efficiency of their supervised banks. The effect on bank operating expenses is estimated at the individual bank level for each of four size strata using a translog cost function, controlling for bank characteristics and the impact of scale and scope economies. Results generally support a conclusion that bank operating cost differences exist by supervisor, except in the largest size stratum.The authors gratefully acknowledge helpful comments and suggestions from Seungmook Choi, Cary Collins, Curt Hunter, Bradford D. Jordan, Richard H. Pettway, John D. Stowe, Larry Wall, and Jim Wansley, and others at the University of Missouri and Northern Illinois University.     

Are Municipal Electricity Distribution Utilities Natural Monopolies?

The purpose of this study is to analyse the cost structure of the Swiss electricity distribution utilities in order to assess economies of scale and density and the desirability of competition in the distribution of electric power. A translog cost function was estimated using panel data for a sample of 39 municipal utilities over the period 1988–1991. The results indicate the existence of economies of density for most output levels and the existence of economies of scale only for small and medium-sized electric utilities. The empirical evidence suggests that franchised monopolies, rather than side-by-side competition, is the most efficient form of production organization in the electric power distribution industry. Further, the majority of the utilities analysed do not operate at an optimal service territory size. Therefore, the consolidation of small utilities whose service territories are adjacent is likely to reduce costs.     

Service quality,scale economies and ownership: an econometric analysis of water supply costs

Issues related to service quality are crucial for water utility management and regulation. Omitting these aspects, especially when they are treated as exogenous, can lead to large biases in estimating cost functions as well as to misleading information concerning technology. In this article, we integrate the output multi-dimension in the cost function, considering delivered water volume and service quality as being endogenous. Network-related scale measures and private versus public ownership are investigated with the objective of evaluating how endogenous quality may affect their impact on costs. A translog cost model is estimated from a dataset of US water utilities. It is shown that including the quality level of the delivered services has a significant impact on scale economies and ownership effects. Significant economies of scope confirm the existence of trade-offs between water production and service quality.     

我国商业银行规模经济问题与金融改革策略透析

本文通过对中国商业银行 1 994— 2 0 0 0年的经营情况的实证分析 ,估算出了各大银行的成本 -规模弹性。在此基础上 ,本文指出 :商业银行经营过程中长期存在的不良贷款沉淀以及放款上的所有制偏好等问题已成为现阶段影响我国金融机构成本 -规模弹性的重要因素 ,而隐藏于它们背后的产权制度安排上的缺陷、金融领域的长期垄断 ,以及民营银行的“国民待遇”等问题则应成为下一步改革的关键     

THE EFFECTS OF FIRM BOUNDARY AND FINANCING CONSTRAINTS ON UTILITY COSTS: THE CASE OF MUNICIPALLY OWNED ELECTRICITY DISTRIBUTION UTILITIES

ABSTRACT: A number of studies have examined costs and potential for scale and scope economies in electricity distribution; however, few if any, have examined this area in terms of the unique constraints associated with municipal ownership or historical and regulatory constraints associated with former municipal ownership. This paper focuses on 19 distribution‐only municipally owned utilities for a ten‐year period (1988–97). Distortions from variable outputs but largely fixed inputs are minimized. The data used were collected specifically to assess productivity, cost, and efficiency performance and include value‐based capital inputs and service prices. Outputs include energy conveyed and number of connections; inputs include capital, system losses, labour, and materials. We examine the effect of using third‐party financing (e.g., connection charges), with its inherent principal‐agent problems, on utility costs, as well as the effect of shared services and multi‐utility output (e.g., electricity and water). A translog total cost function is estimated. Our findings suggest significant returns to scope but also significant increases in costs associated with the use of third‐party financing. The results also suggest scale diseconomies. Shared outputs, which have been greatly restricted or eliminated under restructuring, may have provided larger, and now lost, economies than the scale returns blindly pursued by some through restructuring or incented/forced mergers or divestitures. Finally, it is clear that third‐party financing can raise costs; such financing is widely used among utilities providing electricity, gas, water, and telecommunications, and should be closely scrutinized.     

Public information as a deterrent to environmental infractions

This paper examines the effect of inflation on total factor productivity growth (TFP), using time-series data for every two digit Greek manufacturing industries. In order to do the above a translog flexible cost function is estimated and used to decompose TFP growth into scale economies, inflation and technical change. The advantage of estimating a very general and flexible cost function is that it allows us, for the first time, to examine empirically a large number of significant relationships between TFP growth and economies of scale, inflation and technical change. The main conclusion drawn from this analysis is that inflation reduces TFP growth in a way, which is sizeable. Furthermore, using standard causality test the direction of causality between inflation and TFP growth was tested at the manufacturing level.     

Off-farm labour and the structure of US agriculture: the case of corn/soybean farms

While the growing importance of off-farm earnings suggests large benefits accrue to farmers from efforts to expand off-farm income opportunities, economic well being also depends on greater efficiency. To comprehensively gauge the economic health of farm operator households' off-farm income is interpreted as an output along with corn, soybeans, livestock and other crops. To accomplish this task two related methodologies were used. First, using 2000 data, a multi-activity cost function was set up to analyse labour allocation decisions within the farm operator household and also to estimate returns to scale and scope. Second, using 1996–2000 data, an input distance function approach was followed to estimate returns to scale, cost economies and technical efficiency – and the relative performance of farm operator households with and without off-farm wages and salaries compared. The cost function and input distance function results both suggest that off-farm outputs and inputs can be modelled in a multi-activity framework and involve significant economies of scope.     

Efficiency and regulation in the case of the Swiss Private Railways

This paper discusses the efficiency of the Swiss Private Railways in an economic and regulatory context. For this purpose, scale efficiency and overall cost efficiency for 48 Swiss private railway companies are investigated. A translog cost function for a four-year panel is estimated and measures of economies of scale and density are derived. A compound indicator for network size and structure is introduced. The estimation results allow for a discussion of efficiency in terms of optimal scale and density. Overall cost efficiency is estimated by means of a frontier cost function. The findings on efficiency are discussed in the Swiss political and regulatory context. More specifically, a regression on the influence of ownership and subsidy structure on the efficiency is performed. The findings are that most of the Swiss private railway companies operate at an inappropriately low scale and density. While the companies are rather homogenous in terms of overall cost efficiency, evidence is found for a significant influence of regulation in terms of the subsidy structure.     

关于医院规模经济的实证分析

规模发展已经成为当今医院在市场竞争中的一种主要手段。运用超越对数成本函数,选取了某区域15家三级甲等医院2002—2006年的数据,估算出了医院的规模经济系数。计量结果显示,增加劳动力投入和资本投入均不能带来规模经济,该样本中的医院均处于规模不经济状态。此外还就医院的规模不经济问题进行原因分析和提出若干建议。     

External Scale Economies in Turkish Manufacturing Industries

In this study, the relationship between external scale economies (agglomeration economies) and productivity is measured by using Turkish data. The productivity increase can be due to economies from locating closer to other firms in either the same industry (localisation economies) or different industries (urbanisation economies). Localisation economies are proxied by own industry size and urbanisation economies by city population. Productivity (output per worker) is regressed on industry size, city population, and other related variables. A measure of concentration of state enterprises is included in the regressions to control for the possible inefficiencies in public sector firms. The functional form of the estimating equations is derived from the translog production function. As a check, a constant elasticity of substitution (CES) form is also experimented with. Data are cross-section data and come from industrial and production surveys conducted by the State Institute of Statistics of Turkey in 1985. The study finds that agglomeration economies that are robust across different specifications of the agglomeration economy function and production function exist in food products, textiles, and wood products. Urbanisation economies are detected in food products and textiles. In wood products there are localisation economies.     

混业经营条件下银行集中与效率--基于面板单位根与面板协整分析

基于亚洲国家的面板数据,运用面板单位根与面板协整方法研究混业经营下银行集中与银行效率的关系.理论研究表明银行集中会带来两种相反作用的效应:规模经济和专业化经济,银行集中度提高所带来规模经济上升促进银行效率;相反专业化经济下降损害银行效率.实证分析(1)支持理论所表明的均衡关系,银行效率与银行集中等变量存在协整关系.(2)混业经营条件下,银行集中与银行效率有显著的正相关关系,规模经济效应大于专业化经济效应.因此混业条件下,提高银行效率必须寻求有效途径,加强竞争,适度提高商业银行的集中度.