Returns To Scale Research Articles

Measuring the industrial performance of Chinese cities by data envelopment analysis

The concept of allocative efficiency (AE) is discussed from the perspective of urban planning in China. The AE measurement is analytically achieved by data envelopment analysis/assurance region (DEA/AR) method. Using DEA/AR, this study illustrates the potential of AE to empirically measure the industrial performance of 35 selected Chinese cities. Besides the AE measurement, the current study explores the returns-to-scale (RTS) of these cities. The importance of the RTS measurement is that it does not assume uniqueness in its solution. This article thus presents an extended use of DEA in an attempt to improve the economic achievement within Chinese cities.

A Note on Capacity Utilization and Measurement of Scale Economies

This article investigates the measurement of returns to scale (RTS) via a cost function in the presence of quasi-fixed inputs. Caves, Christensen, and Swanson (CCS) proposed estimation of a variable-cost function and derived a formula for computing RTS from it. This article extends the CCS results by (a) investigating the bias that would result from erroneously using a total-cost function for measuring RTS, (b) indicating that the CCS procedure for measuring scale economies in the presence of quasi-fixed inputs is inconsistent for the case of nonhomothetic production technology, and (c) proposing an alternative procedure that allows one to evaluate RTS at long-run equilibrium points, even when firms in the sample are in disequilibrium. The similarity between this proposed method and the “temporary” equilibrium approach for measuring productivity growth is noted as well. The empirical results on RTS are compared among the three alternative methods (total-cost, CCS variable-cost, and proposed long-run equil...

A Reexamination of Returns to Scale, Density and Technical Progress in U. S. Airlines

The logic of protecting U.S. airlines from competition was initially founded on the belief that substantial economies of scale existed in the industry and that consumers would benefit through, among other things, regulation of fares, regulation of service network, and restrictions on entry and exit from the industry. However, studies [1; 7; 8; 12] have undermined the faith in economic regulation by showing that economies of scale were minimal and competition would promote efficiency. In a recent study, Caves, Christensen, and Tretheway [5] estimated returns to scale (RTS) and returns to density (RTD) for U.S. airlines. Based on a panel dataset for 1970-1981 containing trunk and local service airlines, they estimated RTD and RTS from a translog cost function for airline services. Like many other applied economists working with translog cost functions, they found that the neoclassical curvature or regularity conditions on the cost function are not satisified in almost half of the observations (105 out of 208). In general, concavity property is satisfied in the neighborhood of the sample mean (if it is chosen as the point of approximation for the cost function) but not at points further from the mean. Recently Diewert and Wales [6] suggested alternative flexible functional forms which are globally concave in input prices if the concavity property is satisfied at only one point. Thus if the concavity property is violated, imposition of it at a single point will make the function globally concave without destroying flexibility. Use of such functional forms can avoid violation of regularity conditions of the cost function at extreme points. The objective of this paper is to estimate a model of airline costs along the lines of Caves, Christensen, and Tretheway [5]. However, we extend their results in several ways. First, we consider a modest generalization of the Symmetric Generalized McFadden (SGM) cost function developed by Diewert and Wales by including network and control variables in the airline cost function. The SGM cost function is flexible and globally concave in input prices. Thus our estimates of parameters and measures of RTS, RTD, and technical progress are based on a cost function which is globally concave. Second, we estimate the system of input demand functions instead of the cost function and, while estimating these input demand functions derived from the cost minimizing behavior of the airlines, we incorporate firm- and input-specific effects. These effects capture possible differences in production technologies among airlines. Third, we intro

Returns to Scale Behavior and Manufacturing Agglomeration Economies in U.S. Urban Areas

The returns to scale (RTS) parameter of urban production functions often has been used to test for the existence of agglomeration economies in urban areas. The production function has been viewed as a convenient device for bridging the gap between the theory of agglomeration and its measurement. Though the studies in this area recently have become much more refined, additional research has been needed in some of the more basic methodological and procedural issues connected with the empirical implementation of the production function approach. The principal objective of this study is to obtain a more accurate estimate of RTS for the manufacturing sector of urban agglomerations in the U.S. The conclusion is that the economies of agglomeration may be more complex than originally thought and it may be fruitful to examine more closely the underlying factors involved.

Returns to Scale Behavior and Manufacturing Agglomeration Economies in U.S. Urban Areas

The returns to scale (RTS) parameter of urban production functions often has been used to test for the existence of agglomeration economies in urban areas. The production function has been viewed as a convenient device for bridging the gap between the theory of agglomeration and its measurement. Though the studies in this area recently have become much more refined, additional research has been needed in some of the more basic methodological and procedural issues connected with the empirical implementation of the production function approach. The principal objective of this study is to obtain a more accurate estimate ofRTS for the manufacturing sector of urban agglomerations in the U.S. The conclusion is that the economies of agglomeration may be more complex than originally thought and it may be fruitful to examine more closely the underlying factors involved.

Factor Intensity and Site Geology as Determinants of Returns to Scale in Coal Mining

Increasing returns to scale (RTS) is frequently pos- tulated as affecting productivity in surface coal mining. How- ever, it is not clear whether increased capital intensity or increased output is the relevant phenomenon. A ray-homo- thetic production function that incorporates the capital-labor mix and fixed site geology into the scale elasticity is presented and estimated with a micro (mine level) dataset. The results indicate that higher capital intensity contributes to higher RTS for some types of capital equipment, but not all. On the average increasing RTS was found, with few mines approach- ing optimal scale. T HE literature of coal mining productivity contains many references to returns to scale as a factor in strip mining productivity.' However, different analysts use different definitions of scale,' and consequently their results are mixed. Some analysts associate returns to scale with larger pieces of capital equipment; 2 others use the more traditional economic notion of output volume and the scale elasticity;3 others simply relate output volume to labor productivity.4 It may be true that developments in large pieces of earth-moving equipment have been implemented at surface mines with large output volume, but this does not necessarily imply increasing returns to this par- ticular capital input. This confusion in the mining literature in the use of the term scale, coupled with the more general observation that large firms (not just large mines) rarely have the same capital-labor mix as their smaller counterparts, leads to a hypothesis that a different capital-labor mix yields different economies of scale. The application of ray-homothetic production functions leads to an easily testable hypothesis on the impact of input mix to economies of scale. Additionally, these functions are more general than their homothetic namesakes. Fare (1975) has shown that they do not generate linear expansion paths. convex isoquants, or exhibit strong dispos- ability of inputs. The properties of convexity and strong disposability are necessary for a dual, cost function analysis of the production structure. If the true underlying production function is ray- homothetic, the dual approach is inappropriate, therefore these functions are a desirable tool for productivity analysis in general and in particular when input mix is believed to be an important

A Dual Approach to Measuring the Nearness of Near-Monies

Increasing returns to scale (RTS) is frequently po stulated as affecting productivity in surface coal mining. However, it is not cl ear whether increased capital intensity or increased output is the relevant phen omenon. A ray-homothetic production function that incorporates the capital labor mix and fixed site geology into the scale elasticity is presented and estimated with a micro (mine level)dataset. The results indicate that higher capital int ensity contributes to higher RTS for some types of capital equipment, but not al l. On the average, increasing RTS was found, with few mines approaching optimal scale. Copyright 1987 by MIT Press.

Firm Size and Rate of Growth

Firm Size and Rate of Growth