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A Nonparametric Approach to Multi-product and Product-specific Scale Economies, Economies of Scope, and Cost Efficiency for Kansas Farms

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  • Parman, Bryon
  • Featherstone, Allen
  • Amanor-Boadu, Vincent

Abstract

Use of nonparametric frontier estimation has been shown to accurately estimate cost frontiers, cost efficiency, and economies of scope in industries. This research uses the nonparametric approach to estimate scope and efficiency as well as multi-product and product-specific economies of scale for Kansas Farms. We find that small farms have a large cost savings advantage through exploiting economies of scale up to $500k in gross revenues. Large farms however have the best opportunity for cost savings through improving efficiency. We also find that the nonparametric approach can estimate an accurate cost frontier from a single year’s data while the parametric approach may require up to 20 years of price variability to generate a reliable frontier.

Suggested Citation

  • Parman, Bryon & Featherstone, Allen & Amanor-Boadu, Vincent, 2014. "A Nonparametric Approach to Multi-product and Product-specific Scale Economies, Economies of Scope, and Cost Efficiency for Kansas Farms," 2014 Annual Meeting, February 1-4, 2014, Dallas, Texas 161626, Southern Agricultural Economics Association.
    • Handle: RePEc:ags:saea14:161626
    DOI: 10.22004/ag.econ.161626
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    References listed on IDEAS

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    1. J. Fernandez-Cornejo & C. M. Gempesaw II & J. G. Elterich & S. E. Stefanou, 1992. "Dynamic Measures of Scope and Scale Economies: An Application to German Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 74(2), pages 329-342.
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    3. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
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    5. Chavas, Jean-Paul & Aliber, Michael, 1993. "An Analysis Of Economic Efficiency In Agriculture: A Nonparametric Approach," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 18(1), pages 1-16, July.
    6. Mafoua, Edouard & Hossain, Ferdaus, 2001. "Scope And Scale Economies For Multi-Product Farms: Firm-Level Panel Data Analysis," 2001 Annual meeting, August 5-8, Chicago, IL 20627, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
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    Keywords

    Agribusiness; Crop Production/Industries; Farm Management; Industrial Organization; Production Economics; Productivity Analysis;
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