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Measuring Economies of Diversification: A Frontier Approach

Author

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  • Grosskopf, Shawna
  • Hayes, Kathy
  • Yaisawarng, Suthathip

Abstract

The purpose of this paper is to improve the statistical analysis of multiproduct firm behavior. The authors offer a new empirical technique that can be used to directly analyze issues such as subadditivity, expansion path subadditivity, economies of scope, and economies of diversification. Previous applied work has used "nonfrontier" estimation techniques. The authors show how to introduce frontier approaches to multiproduct cost analysis, which can be applied to any of these concepts and improve the statistical analysis. Specifically, the authors introduce an empirical test using frontier techniques that allows for direct measures of economies of diversification at the firm-specific level.

Suggested Citation

  • Grosskopf, Shawna & Hayes, Kathy & Yaisawarng, Suthathip, 1992. "Measuring Economies of Diversification: A Frontier Approach," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(4), pages 453-459, October.
    • Handle: RePEc:bes:jnlbes:v:10:y:1992:i:4:p:453-59
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    Cited by:

    1. Redpath, N. & O'Connell, J.F. & Warnock-Smith, D., 2017. "The strategic impact of airline group diversification: The cases of Emirates and Lufthansa," Journal of Air Transport Management, Elsevier, vol. 64(PB), pages 121-138.
    2. Villano, Renato & Fleming, Euan & Fleming, Pauline, 2010. "Evidence of farm-level synergies in mixed-farming systems in the Australian Wheat-Sheep Zone," Agricultural Systems, Elsevier, vol. 103(3), pages 146-152, March.
    3. Preyra, Colin & Pink, George, 2006. "Scale and scope efficiencies through hospital consolidations," Journal of Health Economics, Elsevier, vol. 25(6), pages 1049-1068, November.
    4. Pablo Arocena, 2005. "The measurement of scope, scale and diversification economies: How (in)efficient is electricity restructuring and unbundling?," Working Papers 2005/1, Institut d'Economia de Barcelona (IEB).
    5. Fleming, Euan M. & Villano, Renato A. & Fleming, Pauline, 2008. "Evidence of Scope Economies in the Australian Wheat-Sheep Zone," 82nd Annual Conference, March 31 - April 2, 2008, Royal Agricultural College, Cirencester, UK 36849, Agricultural Economics Society.
    6. Mydland, Ørjan & Kumbhakar, Subal C. & Lien, Gudbrand & Amundsveen, Roar & Kvile, Hilde Marit, 2020. "Economies of scope and scale in the Norwegian electricity industry," Economic Modelling, Elsevier, vol. 88(C), pages 39-46.
    7. Arocena, Pablo, 2008. "Cost and quality gains from diversification and vertical integration in the electricity industry: A DEA approach," Energy Economics, Elsevier, vol. 30(1), pages 39-58, January.
    8. Rolf Färe & Giannis Karagiannis, 2023. "Addition and aggregative efficiency," Journal of Productivity Analysis, Springer, vol. 59(3), pages 281-285, June.

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