Estimation Of Cost Function Research Articles

Instructional Case: Estimating Learning-Curve Functions for Managerial Planning, Control, and Decision-Making

To achieve competitive advantage, companies today are critically examining and demanding more from all aspects of their internal accounting systems. In general, today's accounting systems are being challenged to produce accurate information that can be used to facilitate the planning, control, and decision-making needs of managers across the entire value chain of activities. Without relevant and reliable data, pricing, profit-planning, subunit performance evaluation, resource allocation, the application of financial planning models and product-emphasis decisions are complicated, if not impossible. Management accounting procedures can add value to an organization through the development of cost estimation functions that provide more accurate depictions of real-world phenomena. This case deals with the issue of estimating a class of nonlinear cost functions referred to as learning (experience) curve models. The theory upon which this paper is based is well established in the management literature. Thus, our contribution lies not with learning-curve theory development or refinement, but with the application of this theory to the estimation of cost functions using commonly available software (e.g., the SPSS statistical package). Such software has become more user-friendly (and therefore accessible) to students and management accountants alike. Our intent is to encourage more widespread application of such software for the production of more value-relevant managerial information.

Testing cost vs. profit function

The empirical literature on estimation of production technology mostly focuses on estimation of dual cost functions. Estimation of a profit function is not that common. Here, we formally test whether the production technology should be represented by a cost or profit function. We also derive elasticities associated with the long-run profit function from the estimated cost function.

The Effect of IT Capital on Hospital Efficiency

The academic literature on hospital information technology is relatively sparse despite its important implications for hospital management, with only limited empirical evidence linking implementation of hospital IT systems with improvements in health care quality, financial and operational performance. This study aims to corroborate the observational evidence by using a cost function estimation approach to examine the impact of IT capital investments on hospital cost efficiency.

Nonparametric estimation when data on derivatives are available

We consider settings where data are available on a nonparametric function and various partial derivatives. Such circumstances arise in practice, for example in the joint estimation of cost and input functions in economics. We show that when derivative data are available, local averages can be replaced in certain dimensions by nonlocal averages, thus reducing the nonparametric dimension of the problem. We derive optimal rates of convergence and conditions under which dimension reduction is achieved. Kernel estimators and their properties are analyzed, although other estimators, such as local polynomial, spline and nonparametric least squares, may also be used. Simulations and an application to the estimation of electricity distribution costs are included.

Optimal Vessel Quotas and Capacity of a Danish Trawler Fleet Segment: A Dual Approach

In the period of investigation, 1995-2000, the Danish fishery for species meant for human consumption was managed by individual non-transferable vessel quotas, while the fishery for species meant for fishmeal and fish oil was subject to a total quota. The revenues of the fishermen targeting species for human consumption are therefore fixed on the assumption that they are price takers, and that they will maximize profits by minimizing their costs. To model the economic behaviour of the fishermen in terms of the optimal quota size per vessel and optimal fleet size, a dual cost-function approach is an appropriate choice. This method is applied using a generalized Leontief cost function to model the behaviour of the Danish fleet of trawlers below 50 GRT, targeting species for human consumption solely. The estimated cost function is used to determine the optimal quotas yielding: (i) minimum average cost and (ii) maximum profit. The results of the estimations show that the optimal quotas per vessel should be in...

Production structure and input substitution in Canadian sawmill and wood preservation industry

We use a translog cost function to analyze the sawmill and wood-preservation industry in Canada from 1958 to 2003. The estimated cost function is homothetic and Hicks neutral. Allen elasticities of substitution indicate that significant substitution possibilities exist. According to Morishima elasticities of substitution, substitution of labour by other inputs is easier than the substitution of other inputs by labour, and substitution of other inputs by materials is easier than the substitution of materials by other inputs. The demand for production labour, nonproduction labour, and electric power inputs is elastic. In contrast to the previous findings of zero or negative rate of technical change, we find technical progress at the rate of 0.57% per annum and a total factor productivity growth rate of 0.54% per annum in the Canadian sawmill and wood preservation industry.

Measuring economies of vertical integration in network industries: An application to the water sector

This paper provides a framework that aims at distinguishing the technological economies of vertical integration from the vertical economies resulting from an inefficient input allocation due to upstream market imperfections. To illustrate our analysis, we use consistent panel data econometric methods to estimate cost functions on a sample of North-American water utilities. Contrary to what has been found for other network industries (electricity and gas for instance), we show that the global and technological economies of vertical integration are not significant except for the smallest utilities.

An econometrics analysis of firms' compliance costs of sanitary and phytosanitary standards (SPS) in Nigeria's export markets: the case of processed agricultural and food products

The prospective adverse effects of SPS measures made their quantitative evaluation, which has been hitherto scanty, inevitable. In effect, this paper focused on the quantitative determination of cost-raising effect of SPS measures on the exports of processed agricultural and food products of Nigeria through the estimation of firms' variable cost function in an attempt to provide evidence of the cost of compliance to export market standards. Employing primary data, it was found that the imposition of SPS measures in export markets produced significant variable costs of compliance. The study also observed that SPS measures were likely to be imposed for trade restrictive purposes in Nigeria's export markets, while attempts to meet these standards by Nigerian producers and exporters may not result in increased exports, because of the protective intent of the standards' imposing countries. African Journal of Economic Policy Vol. 10(2) 2003: 103-136

Wavelet-Domain Video Denoising Based on Reliability Measures

This paper proposes a novel video denoising method based on nondecimated wavelet band filtering. In the proposed method, motion estimation and adaptive recursive temporal filtering are performed in a closed loop, followed by an intra-frame spatially adaptive filter. All processing occurs in the wavelet domain. The paper introduces new wavelet-based motion reliability measures. We make a difference between motion reliability per orientation and reliability per wavelet band. These two reliability measures are employed in different stages of the proposed denoising scheme. The reliability per orientation (horizontal and vertical) measure is used in the proposed motion estimation scheme while the reliability of the estimated motion vectors (MVs) per wavelet band is utilized for subsequent adaptive temporal and spatial filtering. We propose a novel cost function for motion estimation which takes into account the spatial orientation of image structures and their motion matching values. Our motion estimation approach is a novel wavelet-domain three-step scheme, where the refinement of MVs in each step is determined based on the proposed motion reliabilities per orientation. The temporal filtering is performed separately in each wavelet band along the estimated motion trajectory and the parameters of the temporal filter depend on the motion reliabilities per wavelet band. The final spatial filtering step employs an adaptive smoothing of wavelet coefficients that yields a stronger filtering at the positions where the temporal filter was less effective. The results on various grayscale sequences demonstrate that the proposed filter outperforms several state-of-the-art filters visually (as judged by a small test panel) as well as in terms of peak signal-to-noise ratio

A BIOECONOMIC MODEL FOR CHAM SCALLOP (PATINOPECTEN YESSOENSIS) AQUACULTURE IN KOREA

A bioeconomic model of cham scallop aquaculture in Korea was used to determine an optimal farm grow-out strategy. The model used estimated cost functions for two culture methods and growth functions based on three environmental characteristics for each region (Kojin and Chumunjin). Stochastic growth was incorporated using probabilities of alternative environmental states (based on expected levels of water temperature, salinity, and dissolved oxygen) by region, culture method, and month. The model revealed a 26% potential increase in net present value from altering management of a single rotation. Optimal multiple rotations required up to four different rotations depending on the region and culture style. Farmers could increase economic returns by delaying harvest and subsequent plantings in order to market larger, more valuable scallops. Resource managers could increase resource rents by adjusting the licensing system to account for regional-style differences and by targeting the planned aquaculture investments.

Approximate cost functions for solid waste treatment facilities

Cost estimation is a basic requirement for planning municipal solid waste management systems. The variety of organizational, financial and management schemes and the continuously developing technological advancements render the economic analysis a complex task, made more complex by the scarcity of real cost data. The objectives of this paper were: (1) to explore the problems arising in getting cost estimates from scattered and limited published data; (2) to suggest a procedure for generating cost functions relating initial set-up cost and operating cost with facility size; and (3) to present such cost functions, relevant to European states, for selected types of solid waste treatment and disposal facilities. Regarding the problems of available scarce data, one needs to deal with cost figures which correspond to facilities with variations in size, technology, year of construction, working conditions, level of technological automation, environmental impacts, social acceptance, capacity utilization rate, composition of inflowing waste, waste management policies, degree of compliance with quality standards, etc. The paper addresses this issue and discusses the proper use of statistical analyses in such cases of fragmented data; moreover, it points out some usual misuses of statistics by analysts and the danger of getting erroneous results. The suggested process for generating cost functions acceptable to the decision-makers is pivoted around the question of acceptable approximation level. Finally, approximate cost curves are suggested for waste-to-energy facilities, landfilling facilities, anaerobic digestion facilities and composting facilities.

Velocity-Aided Underwater Navigation System Using Receding Horizon Kalman Filter

This paper discusses the problems related to constructing a receding horizon filter for underwater inertial navigation systems which are subject to external disturbances. Noises are assumed to be bounded, additive, and contained in both state and measurement equations. An estimator is designed according to the sliding-window strategy to minimize the receding horizon estimation cost function. The derived filter is applied to a velocity-aided inertial navigation system. Simulations show that the derived filter is more accurate than the standard Kalman filter (KF) for underwater navigation systems subject to temporary unknown disturbances

Identifying externalities in UK manufacturing using direct estimation of an average cost function

We estimate a translog cost function for UK manufacturing storing the time dummy coefficients to estimate external effects. Such effects are found to stem not only from aggregate activity but also from activity in mechanical engineering and from equipment investment.

Distinguishing Multiproduct Economies of Scale from Economies of Density on a Fixed-Size Transport Network

In order to produce a certain vector of flows over a fixed-size network, a transport firm has to choose, among many other things, a route structure. In accommodating increasing traffic, transport firms will adjust their route structure to minimize costs. However, transport industry structure analysis considers only, often implicitly, the case where the route structure is fixed. In this paper, economies of density, that represents the latter, are conceptually distinguished from economies of scale on fixed-size networks, S, where we allow the route structure to vary. Intuition with a simple example, evidence from the airline industry and the derivation of a formula to calculate S from an estimated cost function are provided. Results are both novel and encouraging. Transport firms, while closer to exhaust economies of density, would still have available sizeable economies of scale.

Offshore Decommissioning Cost Estimation in the Gulf of Mexico

Decommissioning offshore structures represents the end of the production life cycle, when wells are plugged and abandoned, infrastructure is removed, and the site is remediated and cleared of debris. Decommissioning operations are generally routine, involving standard, low-technology methods, over distinct stages and relatively short time horizons. Offshore operations are more uncertain and costly than onshore, however, due to the hostile ocean environment. Cost estimation is an important aspect of the business since engineers, project managers, and financial accountants frequently perform cost estimates in support of evaluating decommissioning alternatives, divestiture opportunities, and liability assessment. The purpose of this paper is to provide an overview of the factors that impact the primary stages of decommissioning and to describe a general methodology to estimate cost functions. A description of the regulatory requirements is presented along with the empirical construction of cost functionals for shallow-water developments in the Gulf of Mexico.

A maximum likelihood approach to temporal factor analysis in state-space model

Paper [L. Xu, Temporal BYY learning for state space approach, hidden Markov model and blind source separation, IEEE Trans. Signal Process. 48 (7) (2000) 2132–2144] has presented a temporal factor analysis (TFA) algorithm in state-space model through minimizing an approximate Kullback-divergence cost function. In this paper, we further study the TFA within the maximum-likelihood (ML) framework. Without using any approximation technique, we build a connection between TFA and a traditional filtering problem in control theory, through which a new adaptive TFA algorithm is proposed. This algorithm utilizes the Kalman filter to optimally estimate the states and its covariance matrix, meanwhile using gradient-based method to tune the other model parameters. Furthermore, without taking the measurement noise into account, we further propose a variant of the algorithm and analyze its solution properties accordingly. The numerical simulations have shown promising results.

Cost evaluation of a two-echelon inventory system with lost sales and approximately normal demand

The inventory system under consideration consists of one central warehouse and an arbitrary number of retailers controlled by a continuous review inventory policy (R,Q). Independent Poisson demands are assumed with constant transportation times for all retailers and a constant lead time for replenishing orders from an external supplier for the warehouse. Unsatisfied demands are assumed to be lost in the retailers and unsatisfied retailer orders are backordered in the warehouse. An approximate cost function is developed to find optimal reorder points for given batch sizes in all installations and the related accuracy is assessed through simulation.

A Practical Study on the Applicability of Macro & Microscopic Combined Approach for Micro-Dynamic Traffic Flow Analysis

The aim of this paper is to verify the applicability and transferability of our proposed Macro & microscopic combined approach for Micro-dynamic traffic flow analysis. Consequently, we can get following findings; 1) instead of observation data on travel time and traffic volume, those data generated by our proposed approach is useful for the estimation of link cost functions. 2) In the case that new road is constructed outside the area to which a micro-simulation is applied, our proposed Macro & microscopic combined approach is effective for Micro-dynamic traffic flow analysis, because input flow data change according to the change ofwide area network flow.

Cost analysis and evaluation of urban sewage processing units

This paper provides a comparative evaluation of the total cost for six conventional urban sewage processing units (complete-mix activated sludge, extended aeration and oxidation ditch, with either belt filtration or sludge drying beds for sludge dewatering respectively) as well as for two types of natural processing ones (waste stabilization ponds and horizontal flow subsurface constructed wetlands). This cost analysis emphasizes on cost components, such as construction cost, energy and chemicals costs, maintenance expenses and salaries. Analysis and estimation of cost functions was based on typical Greek cost prices. A percentage analysis of the total cost components is carried out and results for various treatment types are compared. Estimated results are compared to fiscal data collected from units in Greece.

ECONOMIES OF SCALE AND SCOPE AND THE ECONOMIC EFFICIENCY OF CHINA'S AGRICULTURAL RESEARCH SYSTEM*

This article investigates economies of scale and scope and other potential sources of improvements in the economic efficiency of China's crop breeding, an industry at the heart of the nation's food economy. Using data covering 46 wheat‐ and maize‐breeding institutes from 1981 to 2000, we estimate cost functions for the production of new varieties at China's wheat‐ and maize‐breeding institutes. Our results indicate strong economies of scale, along with small to moderate economies of scope related to the joint production of new wheat and maize varieties. Cost efficiency increases significantly with increases in the breeders' educational status and with increases in access to genetic materials from outside the institute.