Proper Quadratic Cost Functions with an Application to the Bell System

Röller, Lars‐Hendrik

doi:10.2307/2109709

Cited by 131 publications

(64 citation statements)

References 1 publication

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“…For the input prices, we have: w 1 (price of funds, proxied by the ratio of interest expenses to total deposits), w 2 (price of fixed capital, proxied by the ratio of other operating expenses to fixed assets), w 3 (price of labor, proxied by the ratio 10 We choose composite form instead of translog functional form because translog functional forms suffer from several drawbacks when it is applied to measure scope economies. For example, it does not allow zero values for outputs and fixed netputs, the translog is not well behaved in regions around zero, and scope economy estimates have been shown to vary widely, depending upon the value chosen to represent specialized production (Berger, et al (1987), Roller (1990)). …”

Section: Economies Of Diversification Approachmentioning

confidence: 99%

The effects of focus versus diversification on bank performance: Evidence from Chinese banks

Berger

Hasan

Zhou

2010

Journal of Banking & Finance

411

199

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This paper investigates the effects of focus versus diversification on bank performance using data on Chinese banks during the 1996-2006 period. We construct a new measure, economies of diversification, and compare the results to those of the more conventional focus index, which is based on the sum of squares of shares in different products or regions. Diversification is captured in four dimensions: loans, deposits, assets, and geography. We find that all four dimensions of diversification are associated with reduced profits and higher costs. These results are robust regardless of alternative measures of diversification and performance. Furthermore, we observe that banks with foreign ownership (both majority and minority ownership) and banks with conglomerate affiliation -are associated with fewer diseconomies of diversification, suggesting that foreign ownership and conglomerate affiliation play an important mitigating role. This analysis may provide important implications for bank managers and regulators in China as well as in other emerging economies.

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Section: Economies Of Diversification Approachmentioning

confidence: 99%

The effects of focus versus diversification on bank performance: Evidence from Chinese banks

Berger

Hasan

Zhou

2010

Journal of Banking & Finance

411

199

View full text Add to dashboard Cite

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“…With regards to the aforementioned "regularity conditions", more specifically the tests focus on: Another criticism also concerning the point of the regularity conditions is the one from Roller (1990). In his article, the author begins by mentioning the regularity problems of the costs function, subsequently proposing a solution involving a functional form that, by construction, fulfills the regularity conditions in a wider space of quantities.…”

Section: Economies Of Scale and Scope After Evans And Heckmanmentioning

confidence: 99%

Economies of Scale and Scope in the Sanitation Sector

Lucinda

Anuatti²

2017

Brazilian Review of Econometrics

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The recent water supply crisis in São Paulo showed the importance of regulation in the sanitation sector in the State of São Paulo. Therefore, this article aims to help in designing regulation by verifying the existence of economies of scale and of scope in the sanitation sector in São Paulo. For this, a database was constructed based on internal data from SABESP, together with operational data extracted from SNIS. The Evans and Heckman (1983) methodology was used with this database to evaluate economies of scale and of scope. The results enable us to conclude that the existence of diseconomies of scale is extremely rare in the cities served by SABESP.However, the evidence is weaker with relation to economies of scope. Nevertheless, in the vast majority of the cities served by SABESP, supplying water and sewerage services together within one company is cheaper than separating them between two companies focused on different services. In light of the results, we can conclude that initiatives that aim towards the structural separation of integrated water operators tend to generate inefficiencies on the production side, meaning supplying the services is less economical. These results are consistent with the international literature, which according to Abbott and Cohen (2009) indicates the existence of economies of scale up to a certain point, together with economies of scope in water and sewerage activities.

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“…In general there seems to be a trade off among flexible functional forms satisfying all regularity conditions required for a cost function to be an adequate representation of the production technology (concave in input prices and non decreasing in input prices and outputs) and the dimension of the region over which such regularity conditions are fulfilled. Roller (1990) emphasizes that "this 'regular' region may be too small to be able to model demanding cost concepts such as economies of scope and subadditivity". The most popular flexible functional forms, such as the standard translog model (see Christensen et al, 1971), have a degenerate behaviour in the region which is relevant for the derivation of scope economies and subadditivity measures, (in general zero outputs levels) even if they satisfy the regularity conditions for a larger set of points (see Diewert, 1974 andDiewert andWales, 1987).…”

Section: Literature Reviewmentioning

confidence: 99%

“…The explanation can be found in the degenerate behaviour of such cost function when outputs are close to zero (see Roller, 1990). …”

Section: Economies Of Scope and Sizementioning

confidence: 99%

Diversification strategies and scope economies: evidence from a sample of Italian regional bus transport providers

Ottoz

Giacomo

2012

Applied Economics

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Proper Quadratic Cost Functions with an Application to the Bell System

Cited by 131 publications

References 1 publication

The effects of focus versus diversification on bank performance: Evidence from Chinese banks

The effects of focus versus diversification on bank performance: Evidence from Chinese banks

Economies of Scale and Scope in the Sanitation Sector

Diversification strategies and scope economies: evidence from a sample of Italian regional bus transport providers

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