Distinguishing external from internal scale effects: The case of public infrastructure

Catherine J. Morrison, Amy Ellen Schwartz

Research output: Contribution to journalArticle

23 Scopus citations

Abstract

The recent applied production theory literature focusing on the economic performance of firms has increasingly recognized the importance of scale effects on costs and therefore efficiency. These scale effects may include short run returns due to fixity of privately demanded inputs (i.e., capital, long run internal returns to scale, and external factors affecting costs. Since these different types of scale effects can be thought of as shifts in and movements along cost curves, the different cost effects of such factors can be identified in a framework which explicitly takes them into account in the definition of scale. In this article we formalize such a framework, and then use it to measure short run, long run (internal) and external scale effects from fixity of private capital, nonconstant returns to scale and public infrastructure. We then use these measures to identify the impacts of these different scale factors on productivity growth. The focus on public infrastructure as an important "external" scale factor is motivated by the current theoretical and policy interest in this issue; we show how a structural production theory model provides a rich basis for the analysis of the cost effects of infrastructure investment.

Original languageEnglish (US)
Pages (from-to)249-270
Number of pages22
JournalJournal of Productivity Analysis
Volume5
Issue number3
DOIs
StatePublished - Oct 1 1994
Externally publishedYes

Keywords

  • aggregate increasing returns
  • productivity impact
  • scale

ASJC Scopus subject areas

  • Business and International Management
  • Social Sciences (miscellaneous)
  • Economics and Econometrics

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