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Article
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The Quarterly Journal of Economics
Article . 1986 . Peer-reviewed
Data sources: Crossref
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Addition and Efficiency

Addition and efficiency
Authors: Färe, Rolf;

Addition and Efficiency

Abstract

The thought that it can be efficient to combine two or more multiproduct firms (plants) is made precise by \textit{W. Baumol, J. Panzar} and \textit{R. Willig} [''Contestable markets and the theory of industry structure''; San Diego: Harcourt, Brace, Jovanovich (1982)]. In particular, the notion of economies of scope is introduced to model the gains of combining two or more firms (plants) producing different outputs. One economic importance of economies of scope is stated in Proposition 9.B.1, p. 248, of the above-mentioned book: ''Multiproduct firms in a competitive equilibrium must enjoy (at least weak) economies of scope over the set of products which they produce; that is economies of scope are necessary for the existence of multiproduct competitive firms.'' Various parametric methods have been suggested to test or estimate economies of scope. The purpose of this paper is to introduce a nonparametric (linear programming) approach, along the lines suggested by \textit{S. N. Afriat} [Int. Econ. Rev. 13, 568-598 (1972; Zbl 0264.90022)], \textit{W. E. Diewert} and \textit{C. Parkan} [in: Quant. Studies on Prod. and Prices. Würzburg (1983)], and the author, \textit{S. Grosskopf} and \textit{C. A. K. Lovell} [''The measurement of efficiency of production'', Boston (1985)] to estimate or test economies of scope. The paper unfolds as follows. In Section II a measure à la Farrell is introduced to gauge efficiency gains from combining two or more multiproduct firms (plants). Section III is devoted to developing a nonparametric (linear programming) method for calculating the efficiency gains.

Keywords

Applications of mathematical programming, nonparametric estimation method, Linear programming, Production theory, theory of the firm, economies of scope, multiproduct firms

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selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
60
Top 10%
Top 10%
Average
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