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Measuring and decomposing economies of diversification: An application to biogas-fuelled cogeneration plants in Austria

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  • Eder, Andreas

Abstract

This paper investigates the existence and the degree of economies of diversification for small-scaled, renewable-fuelled cogeneration systems using 2014 cross-sectional data from 67 Austrian biogas plants. It is the first study applying the recently introduced concept of economies of diversification proposed by Chavas and Kim (2010), which is a generalization and decomposition of economies of scope. Economies of diversification are decomposed into three additive parts: a part measuring complementarity among outputs; a part reflecting economies of scale; a part reflecting convexity. In addition, this paper extends the decomposition introduced by Chavas and Kim (2010) in such a way that the contribution of each input to economies of diversification and its components can be investigated. The results indicate substantial cost savings from diversification. For very-small scaled plants (≤100 kWel) most of the cost savings come from scale economies. For larger plants (>250 kWel) positive complementarity and convexity effects are the main source of economies of diversification and outweigh the negative effect from scale diseconomies. In addition to substantial fuel/feedstock cost reductions, significant costs saving effects from the jointness in labour and other inputs positively contribute to the complementarity effect. While on average capital and labour costs positively contribute to economies of scale, feedstock costs work in the direction of diseconomies of scale.

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  • Eder, Andreas, 2018. "Measuring and decomposing economies of diversification: An application to biogas-fuelled cogeneration plants in Austria," International Journal of Production Economics, Elsevier, vol. 204(C), pages 421-432.
    • Handle: RePEc:eee:proeco:v:204:y:2018:i:c:p:421-432
    DOI: 10.1016/j.ijpe.2018.08.010
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    More about this item

    Keywords

    Data envelopment analysis; Cost frontier; Economies of scale; Economies of scope; Renewable energy sources; Energy efficiency;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • Q16 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - R&D; Agricultural Technology; Biofuels; Agricultural Extension Services
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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