Analyzing Cost Efficient Production Behavior Under Economies of Scope: A Nonparametric Methodology

IZA Discussion Paper No. 2319

CentER Discussion Paper Series No. 2006-81

32 Pages Posted: 17 Sep 2006

See all articles by L. Cherchye

L. Cherchye

KU Leuven; Erasmus Research Institute of Management (ERIM)

Bram de Rock

Katholieke Universiteit Leuven - Campus Kortrijk (KULAK) - Subfaculty of Economics and Applied Economics

Frederic Vermeulen

Tilburg University - CentER; IZA Institute of Labor Economics

Date Written: September 2006

Abstract

In designing a production model for firms that generate multiple outputs, we take as a starting point that such multi-output production refers to economies of scope, which in turn originate from joint input use and input externalities. We provide a nonparametric characterization of cost efficient behavior under these conditions, and subsequently institute necessary and sufficient conditions for data consistency with such efficient behavior that only include observed firm demand and supply data. We illustrate our methodology by examining the cost efficiency of research programs in Economics and Business Management faculties of Dutch universities. This application shows that the proposed methodology may entail robust conclusions regarding cost efficiency differences between universities within specific specialization areas, even when using shadow prices to evaluate the different inputs.

Keywords: production behavior, multi-product firms, input externalities, joint input use, economies of scope, nonparametric tests

JEL Classification: C12, C14, D21, P32, Q12

Suggested Citation

Cherchye, Laurens and de Rock, Bram and Vermeulen, Frederic, Analyzing Cost Efficient Production Behavior Under Economies of Scope: A Nonparametric Methodology (September 2006). IZA Discussion Paper No. 2319, CentER Discussion Paper Series No. 2006-81, Available at SSRN: https://ssrn.com/abstract=930599

Laurens Cherchye (Contact Author)

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant
Belgium

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Bram De Rock

Katholieke Universiteit Leuven - Campus Kortrijk (KULAK) - Subfaculty of Economics and Applied Economics ( email )

Etienne Sabbelaan 53
Kortrijk, B-8500
Belgium

Frederic Vermeulen

Tilburg University - CentER ( email )

P.O. Box 90153
5000 LE Tilburg
Netherlands
+31 13 466 3196 (Phone)

HOME PAGE: http://center.uvt.nl/staff/vermeulen/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
129
Abstract Views
1,219
rank
243,782
PlumX Metrics