Scope Properties : Nonparametric Assessment, Policy Insights and Functional Estimation

Knowledge of the production function's scope and scale properties can provide insights for firms choosing their operating strategy, policy makers considering industry structure, and analysts determining which tools are appropriate. Although scale properties and their assessment have been popular topics in the productivity literature, scope properties have received less attention. We introduce a new property, returns to scope, which is disentangled from scale properties and does not rely on price information. We consider existing frontier estimation procedures under various scope and scale properties, and identify methods which impose restrictions on the frontier consistent with these properties. Based on desirable characteristics of an estimator of returns to scope, we propose two methods for its assessment. Finally, we present examples and insights using simulated and real data