2134/21949
Thomas Triebs
Thomas
Triebs
David Saal
David
Saal
Pablo Arocena
Pablo
Arocena
Subal C. Kumbhakar
Subal C.
Kumbhakar
Estimating economies of scale and scope with flexible technology
Loughborough University
2016
Economies of scale and scope
Flexible technology
Electric utilities
Vertical integration
Translog cost function
Economics not elsewhere classified
2016-07-11 12:12:26
Journal contribution
https://repository.lboro.ac.uk/articles/journal_contribution/Estimating_economies_of_scale_and_scope_with_flexible_technology/9494048
Economies of scope are typically modelled and estimated using a cost function that is common to all firms in an industry irrespective of their type, e.g. whether they specialize in a single output or produce multiple outputs. Instead, we estimate a flexible technology model that allows for type-specific technologies and show how it can be estimated using linear parametric forms including the translog. A common technology remains a special case of our model and is testable econometrically. Our sample, of publicly owned US electric utilities, does not support a common technology for integrated and specialized firms. Our empirical results therefore suggest that assuming a common technology might bias estimates of economies of scale and scope. Thus, how we model the production technology clearly influences the policy conclusions we draw from its characteristics.