The Structure of the Norwegian Fish Farming Industry: An Empirical Analysis of Economies of Scale and Substitution Possibilities

Abstract

The twofold aim of this article is to model the structure of the Norwegian food farming industry for trout and salmon and to provide estimates for the scale elasticity and substitution possibilities. A translog functional form of the long run cost function is specified and estimated. The empirical findings indicate that both capital-labor and capital-feed input combinations are substitutes. However, the labor-feed relationship is ambiguous; these inputs could be both complements and substitutes. Scale economies existed in the industry in 1982-1983 in the sense that the homogeneous version of the cost function shows statistically increasing returns to scale. However, it can be noted that the measure of the cost efficiency of large farms compared to small farms probably incorporates the combined effect of regulation of the industry and scale economies. The findings also indicate that there is a nonneutral scale expansion as factor intensity alters between small and large farms.