Average-cost efficiency and optimal scale sizes in non-parametric analysis

Under fairly general assumptions requiring neither a differentiable frontier nor a constant-returns-to-scale technology, this paper introduces a new definition of an optimal scale size based on the minimization of unit costs. The corresponding measure, average-cost efficiency, combines scale and allocative efficiency, and generalizes the measurement of scale economies in efficiency analysis while providing a performance criterion which is stricter than both cost efficiency and scale efficiency measurement. The average-cost efficiency is not reliant upon the uniformity of the firms’ input-price vector, and we supply procedures to compute it in both convex and non-convex production technologies. Empirical illustration of the theoretical results is given with reference to large sets of production units.

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Year of publication:	2015
Authors:	Cesaroni, Giovanni ; Giovannola, Daniele
Published in:	European Journal of Operational Research. - Elsevier, ISSN 0377-2217. - Vol. 242.2015, 1, p. 121-133
Publisher:	Elsevier
Subject:	Scale efficiency \| Returns to scale \| Scale economies \| FDH \| DEA

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Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://ebvufind01.dmz1.zbw.eu/10011117454