This paper introduces a flexible multiproduct cost function that permits zero values of one or more of the outputs and can impose restrictions quite easily, if not automatically satisfied, to ensure global concavity property. It satisfies linear homogeneity (in prices) property and is flexible in the output space. Thus the function is ideal for estimating, for example, economies of scope, cost complementarity, product-specific returns to scale, etc., without worrying about zero values of output(s) and extrapolations to points far from the point of approximation. As an empirical application, we use panel data (1978–1985) on 12 Finnish foundry plants to estimate technical progress, overall returns to scale, product-specific returns to scale and economies of scope.
This is a preview of subscription content, log in to check access.
Buy single article
Instant access to the full article PDF.
Price includes VAT for USA
Subscribe to journal
Immediate online access to all issues from 2019. Subscription will auto renew annually.
This is the net price. Taxes to be calculated in checkout.
Bailey, E.E. and A.F. Friedlaender. (1982). Market Structure and Multiproduct Industries.Journal of Economic Literature 20, 1024–1048.
Baumol, W.J., J. Panzar, and R. Willig. (1982).Contestable Market and the Theory of Industry Structure. San Diego, CA: Harcourt Brace Jovanovich.
Berger, A.N., G.A. Hanweck, and D.B. Humphrey. (1987). Competitive Viability in Banking: Scale, Scope, and Product Mix Economies.Journal of Monetary Economics 20, 501–520.
Burgess, D.F. (1974). A Cost Minimization Approach to Import Demand Equations.Review of Economics and Statistics 56, 225–234.
Caves, D.W., L.R. Christensen, and M.W. Tretheway. (1980). Flexible Cost Functions for Multiproduct Firms.Review of Economics and Statistics 62, 477–481.
Christensen, L.R., D.W. Jorgenson, and L.J. Lau. (1973). Transcendental Logarithmic Production Frontiers.Review of Economics and Statistics 55, 28–45.
Diewert, W.E. (1974). Applications of Duality Theory. InFrontiers of Quantitative Economics. Vol. II, (eds.) Intriligator, M.D. and D.A. Kendrick. Amsterdam: North Holland, 106–171.
Diewert, W.E., and T.J. Wales. (1987). Flexible Functional Forms and Global Curvature Conditions.Econometrica 55, 43–68.
Karko, Jussi. (1988).Productivity and Technical Change in the Finnish Iron Foundry Industry in 1978–1985. Helsinki, Finland: The Research Institute of Finnish Economy.
Panzar, J.C. and R.D. Willig. (1977). Economies of Scale in Multi-Output Production.Quarterly Journal of Economics 91, 481–493.
Röller Lars-Hendrik. (1990). Proper Quadratic Cost Functions with an Application to the Bell System.Review of Economics and Statistics 72, 202–210.
Wiley, D.E., W.H. Schmidt, and W.J. Bramble. (1973). Studies of a Class of Covariance Structure Models.Journal of the American Statistical Association 68, 317–323.
About this article
Cite this article
Kumbhakar, S.C. A multiproduct Symmetric Generalized McFadden cost function. J Prod Anal 5, 349–357 (1994). https://doi.org/10.1007/BF01073566
- cost function
- multiple outputs
- global concavity
- returns to scale
- economies of scope