Evidence Of Scale Economies Research Articles

Estimating the Drivers of the Cost of Saved Electricity in Utility Customer-Funded Energy Efficiency Programs

Energy efficiency programs funded by utility customers provide an electricity resource in most U.S. states, but their scale and cost of saving electricity varies significantly by state. In this paper, we explore the drivers of the cost of saved electricity in these programs with an econometric model and nearly a decade of data reported by efficiency program administrators. We found strong evidence for economies of scale and weak evidence for diseconomies of scale, which suggests that states with low levels of efficiency savings relative to retail sales can increase the size of their efficiency programs without large increases to the cost of saved electricity. We discuss examples of energy efficiency forecasting and potential modeling in light our econometric analysis and identify methodological improvements relevant to utilities and grid operators. This paper provides insights into the economics of customer-funded efficiency programs that will support regulators, utilities, and policymakers to utilize energy efficiency as a resource.

Economies of scale and Brazilian local government expenditure: evidence from the State of Paraná

ABSTRACTControversy surrounds local government reform, particularly efforts directed at reducing the number of local authorities to secure economies of scale. We examine whether economies of scale exist in local government outlays by analysing the expenditure of 398 municipalities for the Brazilian state of Paraná using a 16-year panel dataset covering the period 2002–2017. We find evidence that municipal expenditure is characterised by substantial scale economies. However, given the strong correlation between population size and population density, it is important to ascertain whether the influence of population size on municipal expenditure is due to variations in population density or not. When local government areas are divided into sub-groups based on population density, evidence of scale economies remains with the majority of councils operating below optimal size. Municipal consolidations may thus lead to lower per capita expenditure.

Scale and quality in Nordic hospitals

Empirical analysis of hospitals in production economics often find little or no evidence of scale economies and quite small optimal sizes. Medical literature on the other hand provides evidence of better results for hospitals with a large volume of similar procedures. Based on a sample of Nordic hospitals and patients, we have examined whether the inclusion of quality variables in the production models changes estimates of scale elasticity. A sample of 58 million patient records from 2008 and 2009 in 149 hospitals in Denmark, Finland, Norway and Sweden were collected. Patient data DRG-points were aggregated into 3 outputs (medical inpatients, surgical inpatients and outpatients) and linked to operating costs for 292 observations. The patient data were used to calculate quality indicators on emergency readmissions and mortality within 30 days, adjusted for age, gender, comorbidities, hospital transfers and DRG using DRG-specific logistic regressions.The hypothesis that the elasticity of scale increases when quality variables are included was tested against the null hypothesis of no change in the scale elasticity. The observations were used to estimate a cost function using Stochastic Frontier Analysis (SFA). Country dummies as well as dummies for University hospitals, capital city hospitals and the average travelling time for the patients were included as environmental variables. The estimated scale elasticities did not change with the inclusion of quality indicators in any of the tested models. This may be because medical volume effects are confined to few patient groups or possibly even offset by effects on other groups, where quality is reduced by volume. In one model, the scale elasticity was significantly larger than 1.0, a result that contradicts previous studies which have found decreasing returns. Published: Online October 2018. In print Janury 2019.

Geography And The Capital Investment Costs Of Urban Energy Infrastructure: The Case Of Electricity And Natural Gas Networks

Urban infrastructures are characterized by considerably high investment costs, which make investments almost irreversible. Once the construction is completed, it is difficult and expensive to modify the systems. Therefore a detailed cost analysis should be carried out in advance, to prevent unprecedented future charges and provide reliable infrastructure services. This study aims to reveal the economic characteristics of urban energy (electricity and natural gas) distribution systems’ investment costs using (1) capital investment costs at the local level; (2) outputs such as sectoral numbers of customers and energy sales, and input prices; (3) company-specific characteristics of energy distribution firms; and (4) socio-economic and site-specific urban and geographic variables. However, the fourth group variables have often been neglected in the literature, although the impacts of such variables are expected to be highly relevant. In this study, an econometric approach has been utilized for cost analysis. Regression models tested both log-log and the Box-Cox forms, while the Box-Cox regression model, as a flexible form allowing for the endogenous determination of the parameters, gave better results. Regression estimates show that besides the output and input variables, and company-specific variables, socio-economic and site-specific urban and geographic variables have statistically significant effects on electricity and natural gas distribution capital investment costs. Moreover the results provide evidence for economies of scale and density in these distribution systems under various configurations of market size and local conditions.

The Spanish Textile Industry Sans ATC Quota Protection

The Spanish textile and apparel manufacturing sectors have been badly impacted by the global recession as well as the removal of quotas that were in place with the Agreement on Textiles and Clothing (ATC). This study employs a cost function to investigate the presence of scale economies and the interrelationships among inputs of domestic capital, labor, and intermediate goods as well as outsourced (imported) intermediate products for the Spanish textile industry in a global environment that has become increasingly competitive. While there is evidence of scale economies at low output levels, there is also some evidence consistent with diseconomies of scale at the highest output levels. All of the inputs appear to be substitutes for one another except for domestic capital and outsourced intermediate goods. An important finding is that the demands for both labor and domestic intermediate goods have become increasingly sensitive to the prices of outsourced inputs. The estimated coefficients of dummy variables indicate that reduced international trade restrictions have put downward pressure on unit cost for the industry in recent years. These results suggest that the Spanish textile industry and its domestic suppliers will be increasingly challenged by international competitive pressures.

Competing in the Higher Education Market: Empirical Evidence for Economies of Scale and Scope in German Higher Education Institutions

Since the late 1990s, the European higher education system has had to face deep structural changes. With the public authorities seeking to create an environment of quasi-markets in the higher education sector, the increased competition induced by recent reforms has pushed all publicly financed higher education institutions to use their resources more efficiently. Higher education institutions increasingly now aim at differentiating themselves from their competitors in terms of the range of outputs they produce. Assuming that different market positioning strategies will have different effects on the performance of higher education institutions, this paper explores the existence of economies of scale and scope in the German higher education sector. Using an input-oriented distance function approach, we estimate the economies of scale and scope and the technical efficiency for 154 German higher education institutions from 2001 through 2007. Our results suggest that comprehensive universities should indeed orientate their activities to the concept of a full-university that combines teaching and research activities across a broad range of subjects. In contrast, praxis-oriented small and medium-sized universities of applied sciences should specialise in the teaching and research activities they conduct.

Measuring the Performance of Banks: Theory, Practice, Evidence, and Some Policy Implications

The unique capital structure of commercial banking – funding production with demandable debt that participates in the economy’s payments system – affects various aspects of banking. It shapes banks’ comparative advantage in providing financial products and services to informationally opaque customers, their ability to diversify credit and liquidity risk, and how they are regulated, including the need to obtain a charter to operate and explicit and implicit federal guarantees of bank liabilities to reduce the probability of bank runs. These aspects of banking affect a bank’s choice of risk vs. expected return, which, in turn, affects bank performance. Banks have an incentive to reduce risk to protect the valuable charter from episodes of financial distress and they also have an incentive to increase risk to exploit the cost-of-funds subsidy of mispriced deposit insurance. These are contrasting incentives tied to bank size. Measuring the performance of banks and its relationship to size requires untangling cost and profit from decisions about risk versus expected-return because both cost and profit are functions of endogenous risk-taking.This chapter gives an overview of two general empirical approaches to measuring bank performance and discusses some of the applications of these approaches found in the literature. One application explains how better diversification available at a larger scale of operations generates scale economies that are obscured by higher levels of risk-taking. Studies of banking cost that ignore endogenous risk-taking find little evidence of scale economies at the largest banks while those that control for this risk-taking find large scale economies at the largest banks – evidence with important implications for regulation.

Who said large banks don’t experience scale economies? Evidence from a risk-return-driven cost function

Abstract The Great Recession focused attention on large financial institutions and systemic risk. We investigate whether large size provides any cost advantages to the economy and, if so, whether these cost advantages are due to technological scale economies or too-big-to-fail subsidies. Estimating scale economies is made more complex by risk-taking. Better diversification resulting from larger scale generates scale economies but also incentives to take more risk. When this additional risk-taking adds to cost, it can obscure the underlying scale economies and engender misleading econometric estimates of them. Using data pre- and post-crisis, we estimate scale economies using two production models. The standard model ignores endogenous risk-taking and finds little evidence of scale economies. The model accounting for managerial risk preferences and endogenous risk-taking finds large scale economies, which are not driven by too-big-to-fail considerations. We evaluate the costs and competitive implications of breaking up the largest banks into smaller banks.

Who Said Large Banks Don't Experience Scale Economies? Evidence from a Risk-Return-Driven Cost Function

Earlier studies found little evidence of scale economies at large banks; later studies using data from the 1990s uncovered such evidence, providing a rationale for very large banks seen worldwide. Using more recent data, we estimate scale economies using two production models. The standard risk-neutral model finds little evidence of scale economies. The model using more general risk preferences and endogenous risk-taking finds large scale economies. We show that these economies are not driven by too-big-to-fail considerations. We evaluate the cost implications of breaking up the largest banks into banks of smaller size.

Scale and scope economies for drug abuse treatment costs: evidence for Washington State

Drug abuse treatment has been pervasive in the US in the recent years, and the associated direct treatment costs approached $18 billion in 2001. However, there have been few published studies on scale economies, and none on scope economies, for drug abuse treatment costs. We estimate a restricted cost function for 17 hospitals in Washington State that provided inpatient and/or outpatient drug abuse treatment during the years 1997–2004. We find significant evidence of scale economies for hospitals that provide only outpatient drug abuse treatment services. The marginal costs of outpatient services are even smaller for hospitals that produce both outpatient and inpatient drug abuse treatment services. Further, these joint-production hospitals exhibit diseconomies of scope, or specialization economies. These results all imply that recent trends towards additional outpatient treatment services will enhance cost efficiency.

Intermunicipal cooperation, privatization and waste management costs: Evidence from rural municipalities

The aim of this paper is to analyze the effects of intermunicipal cooperation and privatization on the delivery costs of urban solid waste services in rural environments. The results of our empirical analysis, which we conducted among a sample of very small municipalities, indicate that small towns that cooperate incur lower costs for their waste collection service. Cooperation also raises collection frequency and improves the quality of the service in small towns. By contrast, the form of production, whether it is public or private, does not result in systematic differences in costs. Interestingly, the degree of population dispersion, that is, the number of population units within the municipal jurisdiction, has a significant positive relation with service costs. No evidence of scale economies is found because small municipalities have likely exploited them by means of intermunicipal cooperation.

ECONOMIES OF SCALE AND COST EFFICIENCIES: A PANEL-DATA STOCHASTIC-FRONTIER ANALYSIS OF REAL ESTATE INVESTMENT TRUSTS*

This paper extends the existing research on real estate investment trust (REIT) operating efficiencies. We estimate a stochastic-frontier, panel-data model specifying a translog cost function, covering 1995–2003. The results disagree with previous research in that we find little evidence of scale economies and some evidence of scale diseconomies. Moreover, we also generally find smaller inefficiencies than those shown by other REIT studies. Contrary to previous research, the results also show that self-management of a REIT associates with more inefficiency when we measure output with assets. When we use revenue to measure output, self-management associates with more efficiency. Also contrary to previous research, higher leverage associates with more efficiency. The results further suggest that inefficiency increases over time in three of our four specifications.

The Compliance Costs of Maintaining Tax Exempt Status

Under U.S. federal and state tax laws, qualifying nonprofit organizations receive several kinds of tax benefits. However, the benefits come with compliance costs, as eligible organizations must first apply f or them and then file the annual reports necessary to maintain them. We use a national survey to measure the latter, estimating them at $3.2 billion for 2000. Additional results are: (1) evidence of scale economies; (2) choosing to file the federal Form 990 (over the shorter Form 990-EZ) raises expenditures on professional advisors; and (3) using a consolidated reporting form or electronic filing reduces state costs.

Direct Valuation of Personal Care by Huseholds

This paper valued the quantity of child, sick, and elderly care provided by house- holds using a new, direct measure. Such measures add to the literature that estimates the size of the contribution of non-market work by household members, particularly women, and to literature about valuation of childcare. This production remains unvalued in standard national income accounts. Traditional attempts to quantify this care multiplied care-giver hours by a wage rate, a method that suffers from several drawbacks, including omitting the contributions of anything but labor, the inability to handle joint production, and the use of an arbitrary wage rate. This study avoided these problems by valuing the amount of care with its market price based on data from a small urban area. The mean value was $3,547 annually (97 percent of it childcare) for all sample households and $9,610 for those providing care. The results afforded evidence of scale economies in parental childcare and quantified care furnished by different kinds of providers.

External economies of scale in the Lancashire cotton industry, 1900–1950

This article provides three types of evidence for external economies of scale in the Lancashire cotton industry. Anglo‐American productivity differences are used to demon‐strate external economies at the industry level. Econometric evidence of dynamic (Marshall‐Arrow‐Romer) external economies of localization in spinning and weaving is provided using individual earnings data. A case study of a merchant firm demonstrates the build‐up of dynamic (Jacobs) externalities of urbanization. It is argued that the persistence of a large merchant community generating external economies of scale helped to delay Britain's loss of comparative advantage to low wage producers.

Technological opportunity and economies of scale in research productivity : a study on three global industries

In this study, the author tests for economies of scale with the use of patent citationsand assesses the impacts of technological opportunity on research productivity inthree global industries, namely, computer, chemical, and electrical and electronic.Technological opportunity in an industry is jointly represented by knowledgespillovers, inter-firm research overlap and scope of research. In particular, the effect of knowledge spillovers is decomposed into internal, intra-industry and inter-industry spillovers. The results suggest no evidence for economies of scale, but the impacts of various aspects of technological opportunity on research productivity are significantly positive. Moreover, the data indicate that if the number of firms in each overlapping research area is small, a rise in the number of these areas enhances research productivity.

On-the-Job Training, Establishment Size, and Firm Size: Evidence for Economies of Scale in the Production of Human Capital

This paper investigates differences in training capabilities according to the size of the firm. Larger firms have cost advantages and economies of scale in the provision of formal training, as well as greater opportunity for informal co-worker training. A unique set of data is employed to estimate the relationship between employer size and the intensity, duration and composition of various training measures. These cost advantages may lead to greater amounts of training for employees of large firms, explaining the wage rate-firm size differential. There are several tables within this article.

On‐the‐Job Training, Establishment Size, and Firm Size: Evidence for Economies of Scale in the Production of Human Capital

Oi argues that the costs of monitoring employees rise with the value of the entrepreneur's time. One way of economizing on these monitoring costs is through the provision of on‐the‐job training for new employees. In this paper, we argue that differences in training by firm‐ and establishment‐size arise from cost advantages for larger firms; specifically, large firms and establishments have economies of scale in the provision of formal training and greater opportunities for informal coworker training. A unique data set is employed to estimate the relation among employer size and the intensity, duration, and composition of various training measures. It is possible that these cost advantages, which lead to greater amounts of training for employees of large firms, may explain, in part, the wage rate‐firm size differential.

>Conversion Ratios in Charities in England and Wales: An Investigation of Economies of Scale

This study examines ways in which the scale economies of charities can be measured and investigates the use of conversion ratios as indicators of scale efficiency. Problems and difficulties inherent in the use of these ratios are detailed. The analysis then employs nonparametric tests (Mann‐Whitney and Kruskal‐Wallis tests), based on the identified conversion ratios, to examine for the existence of scale economies in the operation of the 500 largest fundraising charities in England and Wales. The statistical analysis provides evidence of scale economies and suggests that scale efficiency gains have not as yet been exhausted. The charity sector therefore appears to be characterised by increasing returns to scale with further growth necessary before optimal size, as indicated by constant returns to scale, is achieved.

Bank Capitalization and Cost: Evidence of Scale Economies in Risk Management and Signaling

We amend the standard cost model to account for the role of financial capital in banking. The cost function is conditioned on the level of capital, but we model the demand for financial capital so that it can serve as a cushion against insolvency for potentially risk-averse managers and as a signal of risk for less informed outsiders. Scale economies are then computed without assuming that the bank chooses a level of capitalization that minimizes cost. We find evidence of substantial scale economies and that bank managers are risk averse and use the level of financial capital to signal the level of risk.