Economies of density, scale and scope in the water supply and sewerage sector: a study of four developing and transition economies

Using panel data, we estimate measures of density, scale and scope economies in four countries that differ substantially in their levels of economic development and in their piped water and sewerage coverage: Brazil, Moldova, Romania and Vietnam. We find evidence of economies of scale in Moldova, Romania and Vietnam. In Brazil, we cannot reject the null hypothesis of constant returns to scale. The results of this study show that the cost structure of water and sewerage utilities varies significantly within and between countries and over time.      

Aumann-Shapley prices as a scarf social equilibrium

Considered are economies with a single output (a single consumption good) which is produced from l inputs by means of an increasing returns to scale production function f. We show that for quasi-concave and homogeneous functions f of degree r ? 1, the Aumann-Shapley prices constitute a simple Scarf Social Equilibrium. Put differently, Shapley value of the associated atomless game is in the core of that game. Such is not the situation, however, in the more general case when f exhibits increasing returns to scale (but in homogeneous).     

Economies of scale in the Australian tourism industry

The measurement of economies of scale in the tourism industry has not been done to this point, as tourism is not a specific industry according to international statistical standards. Among many industries related to tourism, four sectors (accommodation, transport, retail trade and recreational services) across six states and two territories from 1997 to 2007 are studied as they contribute nearly 70% of tourism output in Australia. By comparing regression results from the Cobb–Douglas (C–D) production function and the translog production function, we find that there is evidence of increasing returns in transport, retail trade and recreational services at the industry level. However, accommodation is characterized by constant returns to scale at the industry level. As accommodation is responsible for the biggest share of tourism output, this suggests that overall the tourism sector is not characterized by increasing returns. We also find that the degrees of returns to scale from the C–D and translog production functions are different and that the imposition of input share also influences the empirical results. Both of these factors stress the importance of model specification to the measurement of economies of scale.     

Real-time decentralized information processing and returns to scale

We use a model of real-time decentralized information processing to understand how constraints on human information processing affect the returns to scale of organizations. We identify three informational (dis)economies of scale: diversification of heterogeneous risks (positive), sharing of information and of costs (positive), and crowding out of recent information due to information processing delay (negative). Because decision rules are endogenous, delay does not inexorably lead to decreasing returns to scale. However, returns are more likely to be decreasing when computation constraints, rather than sampling costs, limit the information upon which decisions are conditioned. The results illustrate how information processing constraints together with the requirement of informational integration cause a breakdown of the replication arguments that have been used to establish nondecreasing technological returns to scale. November 24, 1999; revised version: March 14, 2000     

On the Limits to the Long-Period Method in Classical Economics: A note

On a first reading of Theory of Production, Kurz & Salvadori (1995) appear to confine the empirical domain of the long-period models of the classical theory of value and distribution to stationary economies with non-constant returns to scale and to growing economies with constant returns to scale. Such a reading is shown to be untenable since it merges the two levels of exploring the extension of a model and of testing a theoretical hypothesis. Conversely, the way Kurz & Salvadori tackle the problems of price dynamics and returns to scale in growing economies is shown to be compatible with what appears to be Sraffa's (implicit) strategy of research.     

Productivity drivers of infrastructure companies: Network industries utilizing economies of scale in the digital era

What drives the productivity dynamics of infrastructure companies? Using a panel of firms in 14 countries, we study total factor productivity (TFP) enhancers of utility and network services companies. We find that moving TFP closer to the technological frontier drives productivity growth at higher speeds in Asian countries than in European countries. We also find that financial leverage exerts a positive effect on TFP growth for larger infrastructure firms and that more financially developed countries utilize economies of scale through better use of financial resources. Large utility and transportation companies display a higher rate of TFP growth, indicating that a competition policy to encourage M&As would be prudent for the utility/transportation sectors to maximize economies of scale. In contrast, we find diseconomies of scale for energy companies in some countries. Moreover, young network firms improve TFP growth faster than their peers in countries with fewer product market regulations. Therefore, policies should remove entry barriers while facilitating the departure of old and low-productivity firms from network markets. Finally, policymakers should offer well-targeted fiscal incentives for intangible investments to boost TFP because the accumulation of intangible assets such as digital technology promotes more scale economies through network effects.     

Economies of scale in the US computer industry: An empirical investigation using data envelopment analysis

Up to recently, economists have had no good tools to measure the returns to scale of individual corporations in an industry. Data envelopment analysis (DEA) is a linear programming technique for determining the efficiency frontier (the envelope) to the inputs and outputs of a collection of individual corporations or other productive units. While DEA offers an avenue for calculating the returns to scale of individual corporations, the approach has been riddled by mathematical complications arising from the possibility of alternate optima. The present paper develops theory for calculating the entire range of these alternate optima. Furthermore, in a quite ambitions empirical application, DEA is employed to determine the time path of returns to scale of all publicly held U.S. computer companies over the time period 1980–1991. For the great majority of companies, a unique time path is obtained; only in less than 4 percent of the linear programming calculations is an entire range of alternate optima obtained. The results indicate that the computer industry was polarized into two camps: large aging corporations with decreasing returns to scale, and swarms of small upstart companies with advanced technology exhibiting increasing returns to scale.     

ECONOMIES OF SCALE AND SCOPE IN POSTAL OUTLETS UNDER CONSIDERATION OF UNOBSERVED HETEROGENEITY

ABSTRACT: We analyze economies of scale and scope in Swiss Post's post offices and franchised postal agencies under consideration of different underlying production technologies and unobserved factors using a latent class model. The results confirm the existence of unobserved heterogeneity and of increasing economies of scale and scope in the Swiss Post's outlet network.     

Bidding for Labor

We present a competing-auction theory of the labor market, where job candidates auction their labor services to employers. An equilibrium matching function emerges which has many of the features commonly assumed, including constant returns to scale in large economies. The auction mechanism also generates equilibrium wage dispersion among homogeneous workers and constrained-efficient entry of vacancies in large economies. In a dynamic version of the model, we generate implied numerical values for equilibrium unemployment and wage dispersion. The theory makes the novel prediction that wage dispersion is a decreasing function of the discount factor and labor market tightness. Journal of Economic Literature Classification Numbers: E24, J31, J41, J64, D44.     

Returns to scale: concept,estimation and analysis of Japan's turbulent 1964–88 economy

Abstract There is policy interest in factoring productivity growth into technical progress and returns to scale components. Our approach uses exact index number methods to reduce the parameters that must be estimated, and allows us to exploit the cross‐sectional dimension of plant‐level panel data. We show that the same equation can also be used to estimate ‘Harberger’ scale economies and technical progress indicators that require fewer assumptions. Estimates of the elasticity of scale for Japanese establishments in three major industries over 1964–88 are presented. Our study spans the high growth era of the 1960s, two oil shocks, and other exogenous shocks.     

我国广播影视业上市公司规模经济效应研究

广播影视企业是否存在规模经济效应直接反映了公司资源利用效率以及整体经营状况,基于16家广播影视业上市公司财务数据,建立超越对数生产函数模型,通过计算规模弹性系数判断广播影视企业是否存在规模经济效应。研究表明:现阶段我国广播影视业上市公司的经营均不存在规模经济效应,资产规模与规模收益弹性之间有极强的正相关性。     

Economies of scope and scale in the Norwegian electricity industry

An important issue for multi-product firms to consider is economies of scope, i.e., whether there is any benefit from producing two or more products, or whether specializing in producing only one product would be less costly. We examined the economies of scope for Norwegian electricity companies because policy makers have decided to force companies that both generates and distributes electricity to split their operations into two companies, one engaged in generation only and the other in distribution only. We set out to test the validity of the policy makers decision on unbundling generation and distribution. Using data from Norwegian electricity companies for the period 2004–2014, we found evidence of economies of scope, meaning that policy makers’ insistence on separating generation and distribution companies will have increased costs. We also found evidence of economies of scale, meaning that there are cost savings in expanding outputs. Our findings provide important information to consider in future policy decisions in the Norwegian electricity industry, probably with implications for other countries.     

Indeterminacy Arising in Multi-sector Economies

We characterize a large class of constant-returns-to-scale economies with standard Cobb–Douglas production technologies, which, when perturbed to incorporate external effects, exhibit indeterminacy or multiple equilibria. The perturbations are constrained to maintain overall constant returns to scale. We characterize the magnitude of the external effects that yield multiple equilibria in terms of the parameters of the unperturbed economy. We show that it is very easy to construct large and plausible classes of economies that exhibit indeterminacy with constant returns to scale, and with external effects that are arbitrarily small.
JEL Classification Numbers: E00, E3, O40.     

Econometric Cost Structure Estimates for Cellular Telephony in the United States

This article estimates economies of scale for a sample of five cellular telephony firms in the United States. We reject constant returns to scale for all but the smallest firm studied; the remaining firms exhibit decreasing returns to scale. This finding suggests that scale economies cannot be used to justify the current regulated duopoly structure of United States cellular markets.     

External Economies of Scale and Optimal Plant Location

This paper departs from earlier work on location theory by introducing external economies of scale into the Weber–Moses location model. It is shown that under Cournot–Nash competition, when external economies prevail, constant returns to scale at the firm level is not a sufficient condition for ensuring the invariance of the firm's optimal location with respect to a change in market demand, regardless of whether or not free entry is allowed. Moreover, when free entry is allowed and the production function exhibits decreasing returns to scale, but with very strong external economies, the optimal location moves towards or away from the market as demand increases according to whether the demand function is convex or concave. These results are different significantly from the conventional wisdom.     

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.     

The comparative statics of cumulative distribution function changes for the class of risk averse agents

We examine the connection between Walrasian equilibria of a limit economy (with infinitesimal firms) and the noncooperative (Cournot) equilibria of approximating finite economies (with significant firms). Following earlier work of Novshek and Sonnenschein we allow for set-up cost and permit a minimal form of mixed strategies. We depart from them by requiring that the aggregate production set exhibits some degree (however small) of decreasing returns. Contrasting with their results, it is shown that a (regular) Walrasian equilibrium of a limit economy can always be approximated by a sequence of noncooperative equilibria for the tail of the approximating (finite) economies. Thus, there is a surprising qualitative discontinuity when one passes from the Novshek-Sonnenschein case of aggregate constant returns to scale of the decreasing returns case of this paper.     

R&D productivity: A global multi-industry comparison

This study considers the productivity of R&D expenditures on an international and multi-industry basis. Using 1992 data reported by Business Week on 117 companies in the United States, Europe, and Japan, we examined two measures of innovative output, patents and impact-adjusted patents, in relationship to R&D spending. Our results clearly show a decreasing returns to scale of R&D expenditure. Although this pattern holds true regardless of industry or global region, the level of return and rate of decreasing returns vary by both industry and international region.     

SCALE ECONOMIES AND HETEROGENEITY IN BUSINESS MONEY DEMAND: THE ITALIAN EXPERIENCE

This paper investigates the demand for money by firms and the existence of economies of scale in the Italian manufacturing industry. We estimate a model for cash elaborated by Fujiki and Mulligan using a different estimation procedure from the previous literature. We then introduce an iterative procedure based on backward exclusion of firms from model estimation which points out the high heterogeneity of Italian companies in money demand. Our estimates show that the Italian manufacturing industry, considered as a whole, does not enjoy scale economies in money demand. However, our iterative procedure points out that the cause of this result has to be ascribed to small firms which are characterized by thin cash money holdings and a consequent very modest opportunity cost.     

Reducing urban public transport costs by tendering lots: a panel data estimation

Allotment is, for urban authorities, a governance strategy to reduce public transport costs. It consists of dividing a network into several lots, so as to multiply the number of calls for tender. On the one hand, gains should be obtained by increasing competition for the market and reducing the costs of obtaining accurate information. On the other hand, cutting a network into several parts is also expected to have negative consequences on production costs, in terms of lower returns to scale. Many industry stakeholders believe that the latter element more than compensates for the former. In this article, we estimate a translog cost function with a panel of 141 French urban public transport networks. Our main conclusion is that scale economies are exhausted for a production of about 3 million vehicle-kilometres per year. Therefore, as far as returns to scale are concerned, allotment would reduce the costs of public transport services for the main cities of our sample. A second dividend for allotment is then presented and implies that the assumed trade-off between returns to scale and increased competition is irrelevant.