Title: Big and beautiful? On non-parametrically measuring scale economies in non-convex technologies
Authors: De Witte, Kristof
Marques, R.
Issue Date: 2008
Publisher: KULeuven CES
Series Title: CES - Discussion paper series 08.22 pages:1-22
Abstract: Knowledge on the scale economies drives the incentives of regulators, governments and individual utilities to scale-up or scale-down the scale of operations. This paper considers the returns to scale (RTS) in non-convex frontier models. In particular, we evaluate RTS assumptions in a Free Disposal Hull model, which accounts for uncertainty and heterogeneity in the sample. Additionally, we provide a three-step framework to empirically analyze the existence and extent of RTS in real world applications. In a .rst step, the presence of scale (and scope) economies is veri.ed. Secondly, RTS for individual observations are examined while in a third step we derive the optimal scale for a sector as a whole. The framework is applied to the Portuguese drinking water sector where we .nd the optimal scale to be situated around 7 to 10 million m3.
Publication status: published
KU Leuven publication type: IR
Appears in Collections:Research Center of Public Economics, Leuven

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