Measurement and decomposition of flexibility of multi-output firms

Abstract

Flexibility can be considered as a crucial factor of competitive advantage, especially under conditions of dynamically changing environments. Based on the classical microeconomic definition of flexibility, as introduced by Stigler, and some recent concepts developed in the production economics, this article proposes a primal flexibility measure for multi-product firms. When decomposed, this measure offers useful insights into possible sources of flexibility, especially by investigating the role of both scale and scope economies. This approach provides the theoretical basis to investigate the magnitude and sources of flexibility in the Polish agricultural sector during the transition period.

Evaluating dynamics, sources and drivers of productivity growth at the farm level

“…Where is the costs function, is the (MxM) Hessian matrix of the cost function with respect to outputs, 1 J denotes the (1xM) unit vector and E y is the (Mx1) vector of cost elasticities with respect to outputs. Renner, Glauben and Hockmann (2014) propose to decompose the cost flexibility measure by Cremieux et al (2005) into three componentsthe convexity effect, scope effect and scale effect in the following way:…”

“…44 -EVALUATING DYNAMICS, SOURCES AND DRIVERS OF PRODUCTIVITY GROWTH AT THE FARM LEVEL OECD FOOD, AGRICULTURE AND FISHERIES PAPERS N°106 © OECD 2017 Renner et al (2014) derive a measure of flexibility for the input distance function defined as:…”

“…Hayargasht et al (2008) showed how economies of scope can be derived using a flexible form of an input distance function. Elaborating on results of the both above-mentioned studies, Renner et al (2014) derived a primal measure of flexibility for a multi-output production technology.…”

“…Depreciation as a measure of capital input is routinely used in production analysis (Kazukauskas et al 2014, Renner et al 2014or Cechura et al 2017). Analogue to Renner et al (2014) it is assumed in this analysis that both depreciation rate and expenditures on capital services are proportional to the value of capital stock used in the production process, independently of that in whose property it is (for the discussion on the measurement possibilities of the capital input see for example Coelli, 2005). As contract services are frequently used by small farms, it would be interesting from a policy perspective to consider them separately in the analysis.…”

Rural development funding and agricultural labour productivity: A spatial analysis of the European Union at the NUTS2 level

“…Obviously, more factors than mentioned here play a role, such as the demand side of the market (market prices), competing sectors on the labour market, and management techniques.2 At the micro level, the degree of flexibility of individual farmers has been studied in detail(Renner et al, 2014).…”