Is Returns to Scale with Variable Network Size Adequate for Transport Industry Structure Analysis?

Transportation Science, Vol. 40, No. 3, pp. 259-268, August 2006

Posted: 17 Feb 2005

See all articles by Leonardo J. Basso

Leonardo J. Basso

Universidad de Chile - Civil Engineering Department

Sergio R. Jara-Diaz

Universidad de Chile

Abstract

It is customary to analyze transport industry structure using two indices: economies of density and economies of scale with variable network size (RTS). The latter has been defined to analyze the behavior of costs when output and network size expand simultaneously. After reviewing in detail what is intended with the calculation of RTS under this definition, we show analytically that, when the spatial aspects underlying transport production are taken into account, the seemingly reasonable conditions imposed on the aggregate output descriptions and the network variable in fact conceal implicit output expansions that are not uniquely defined: they happen to depend on the specification of variables and on the evaluation point. Furthermore, most of the multiple output expansions analyzed correspond to cases that are hardly instructive. We conclude that this index is inherently ambiguous, hardly contributes to an adequate analysis of transport industry structure and should be replaced by the calculation of economies of spatial scope.

Keywords: transportation economics, returns to scale, transport production, multioutput cost functions

JEL Classification: L91, L11, D40

Suggested Citation

Basso, Leonardo J. and Jara-Diaz, Sergio R., Is Returns to Scale with Variable Network Size Adequate for Transport Industry Structure Analysis?. Transportation Science, Vol. 40, No. 3, pp. 259-268, August 2006, Available at SSRN: https://ssrn.com/abstract=668181

Leonardo J. Basso (Contact Author)

Universidad de Chile - Civil Engineering Department ( email )

Casilla 228-3
Santiago
Chile
56 2 978 4380 (Phone)
56 2 689 4206 (Fax)

HOME PAGE: http://tamarugo.cec.uchile.cl/~dicidet/leo.html

Sergio R. Jara-Diaz

Universidad de Chile ( email )

Pío Nono Nº1, Providencia
Santiago, R. Metropolitana 7520421
Chile

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