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D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion.Citation of such a paper should account for its provisional character. A revised version may be available directly from the author.
ABSTRACT Analyzing Cost Efficient Production Behavior Under Economies of Scope: A Nonparametric Methodology *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.
,QWURGXFWLRQWe present a novel approach for analyzing the cost efficiency of multi-output firms. Our starting point is that such multi-output production is essentially induced by the presence of economies of scope, which may loosely be defined as "situations where the average total cost of production decreases as a result of increasing the number of different goods produced" (see, e.g., Baumol et al., 1982). Given this, we stress that we do not want to present a methodology for investigating the extent to which eco...