Effects of inefficiency on marginal costs, degree of economies of scale and technical changea theoretical relationship

  1. Juan José Díaz-Hernández 1
  2. Eduardo Martínez-Budría 1
  3. Rosa Marina González 1
  1. 1 Universidad de La Laguna
    info

    Universidad de La Laguna

    San Cristobal de La Laguna, España

    ROR https://ror.org/01r9z8p25

Journal:
Revista de métodos cuantitativos para la economía y la empresa

ISSN: 1886-516X

Year of publication: 2020

Volume: 29

Pages: 190-207

Type: Article

DOI: 10.46661/REVMETODOSCUANTECONEMPRESA.2804 DIALNET GOOGLE SCHOLAR lock_openOpen access editor

More publications in: Revista de métodos cuantitativos para la economía y la empresa

Abstract

In this paper, a theoretical relationship is obtained to measure the effect that inefficiency has on marginal costs, degree of economies of scale and technical change. It is shown that when the relationship between inefficiency and output level is ignored, the estimation of marginal costs and the degree of economies of scale are incorrect. The measurement of technical change is also wrongly calculated if one does not consider the variation of inefficiency over time. This could lead to incorrect pricing decisions that would transfer inefficiency to the consumer via prices and non-optimal investments in productive capacity. In addition, the effect of technical change on costs could be erroneously estimated. The empirical application of this theoretical model to Spanish port authorities during the period 2008-2016 shows that marginal costs of port services were overestimated, the degree of economies of scale was underestimated and the time variations of the inefficiency were interpreted erroneously as technical change when the relationship between inefficiency and output and time is not considered

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The authors are grateful for the constructive comments of the reviewers and the editor, as well as the help of Professor Lourdes Trujillo (University of Las Palmas de Gran Canaria) and the public entity Puertos del Estado in the compilation of the data used in this paper.

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