Economies of Scale and Efficiency of the Pulp Industry in Indonesia: Cobb-Douglas Cost Function Approach
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Urban Concentration: the Role of Increasing Returns and Transport Costs
i'445o Urban Concentration: The Role of Increasing Retums and Transport Costs Public Disclosure Authorized Paul Krugman Very largeurban centersare a conspicuousfeature of many developingeconomies, yet the subject of the size distribution of cities (as opposed to such issuesas rural-urban migration) has been neglected by development economists. This article argues that some important insights into urban concentration, especially the tendency of some developing countris to have very large primate cdties, can be derived from recent approachesto economic geography.Three approachesare comparedrthe well-estab- Public Disclosure Authorized lished neoclassica urban systems theory, which emphasizes the tradeoff between agglomerationeconomies and diseconomies of city size; the new economic geogra- phy, which attempts to derive agglomeration effects from the interactions among market size, transportation costs, and increasingreturns at the firm level; and a nihilistic view that cities emerge owt of a randon processin which there are roughly constant returns to city size. The arttcle suggeststhat Washingtonconsensus policies of reducedgovernment intervention and trade opening may tend to reducethe size of primate cties or at least slow their relativegrowth. Over the past severalyears there has been a broad revivalof interestin issues Public Disclosure Authorized of regional and urban development. This revivalhas taken two main direc- dions. T'he first has focused on theoretical models of urbanization and uneven regional growth, many of them grounded in the approaches to imperfect competition and increasing returns originally developed in the "new trade" and anew growth" theories. The second, a new wave of empirical work, explores urban and regional growth patterns for clues to the nature of external economies, macro- economic adjustment, and other aspects of the aggregate economy. -
TRANSACTION COST LIMITS to ECONOMIES of SCALE Cotton M
DO RATE AND VOLUME MATTER? TRANSACTION COST LIMITS TO ECONOMIES OF SCALE Cotton M. Lindsay & Michael T. Maloney Department of Economics Clemson University In the traditional treatment, economies of scale are attributed to a hodgepodge of sources. A typical list might include Adam Smith's famous "division of labour," economies of large machines, the integration of processes, massed reserves, and standardization. The list can be partly systematized because, when considered in detail, these various economies are themselves the result of various other more basic and occasionally overlapping principles. For example, both economies of massed reserves and economies of standardi- zation are to a certain extent the product of the statistical “law of large numbers.” However, even this analysis fails to strike to the heart of the matter because the technological factors however described that reduce costs with scale do not in themselves imply that large firms can produce at lower cost than small firms. The possible presence of such technological scale economies does not give us adequate knowledge to predict the structure of industry. These forces of nature may combine to make it cheaper to get things done in big chunks. However, this potential will be economically important only in the presence of transactions costs. Firms can specialize their production processes and hire out the jobs that require large scale. Realistically all firms hire out some portion of the production process regard- less of their size. General Motors ships many of its automobiles by rail, but does not own a railroad for this purpose. Anaconda uses a great deal of fuel oil in its production of copper, but it does not own oil wells or refineries. -
The Role of Industrial and Post-Industrial Cities in Economic Development
Joint Center for Housing Studies Harvard University The Role of Industrial and Post-Industrial Cities in Economic Development John R. Meyer W00-1 April 2000 John R. Meyer is James W. Harpel Professor of Capital Formation and Economic Growth, Emeritus and chairman of the faculty committee of the Joint Center for Housing Studies. by John R. Meyer. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including notice, is given to the source. Draft paper prepared for the World Bank Urban Development Division's research project entitled "Revisiting Development - Urban Perspectives." Any opinions expressed are those of the author and not those of the Joint Center for Housing Studies of Harvard University or of any of the persons or organizations providing support to the Joint Center for Housing Studies, nor of the World Bank Urban Development Division. The Role of Industrial and Post-Industrial Cities in Economic Development by John R. Meyer Once upon a time the location of towns and cities, at least superficially, seemed to be largely determined by the preferences of kings, princes, bishops, generals and other political and military leaders of society. A site’s defensibility or its capabilities for imposing military or administrative control over surrounding countryside were often of paramount importance. As one historian summed up the conventional wisdom: “Cities...were to be found...wherever agriculture produced sufficient surplus to sustain a population of rulers, soldiers, craftsmen and other nonfood producers.”1 The key to successful urbanization, in short, wasn’t so much what the city could do for the countryside as what the countryside could do for the city.2 This traditional view of early cities, while perhaps correct in its essentials, is also almost surely too limited.3 Cities were never just parasitic; most have always added at least some economic value. -
Cost Concepts the Cost Function
(Largely) Review: Cost concepts The Cost Function • Cost function C(q): minimum cost of producing a given quantity q • C(q) = F + V C(q), where { Fixed costs F : cost incurred regardless of output amount. Avoidable vs. sunk: crucial for determining shut-down decisions for the firm. { Variable costs V C(q); vary with the amount produced. C(q) { Average cost AC(q) = q @C(q) { Marginal cost MC(q) = @q V C(q) F { AV C(q) = q ; AF C(q) = q ; AC(q) = AV C(q) + AF C(q). Example • C(q) = 125 + 5q + 5q2 • AC(q) = • MC(q) = • AF C(q) = 125=q • AV C(q) = 5 + 5q q AC(q) MC(q) 1 135 15 • 3 61.67 35 5 55 55 7 57.86 75 9 63.89 95 • AC rises if MC exceeds it, and falls if MC is below it. Implies that MC intersects AC at the minimum of AC. Short-run vs. long-run costs: • Short run: production technology given • Long run: can adapt production technology to market conditions • Long-run AC curve cannot exceed short-run AC curve: its the lower envelope Example: \The division of labor is limited by the extent of the market" (Adam Smith) • Division of labor requires high fixed costs (for example, assembly line requires high setup costs). • Firm adopts division of labor only when scale of production (market demand) is high enough. • Graph: Price-taking firm has \choice" between two production technologies. Opportunity cost The opportunity cost of a product is the value of the best forgone alternative use of the resources employed in making it. -
Report No. 2020-06 Economies of Scale in Community Banks
Federal Deposit Insurance Corporation Staff Studies Report No. 2020-06 Economies of Scale in Community Banks December 2020 Staff Studies Staff www.fdic.gov/cfr • @FDICgov • #FDICCFR • #FDICResearch Economies of Scale in Community Banks Stefan Jacewitz, Troy Kravitz, and George Shoukry December 2020 Abstract: Using financial and supervisory data from the past 20 years, we show that scale economies in community banks with less than $10 billion in assets emerged during the run-up to the 2008 financial crisis due to declines in interest expenses and provisions for losses on loans and leases at larger banks. The financial crisis temporarily interrupted this trend and costs increased industry-wide, but a generally more cost-efficient industry re-emerged, returning in recent years to pre-crisis trends. We estimate that from 2000 to 2019, the cost-minimizing size of a bank’s loan portfolio rose from approximately $350 million to $3.3 billion. Though descriptive, our results suggest efficiency gains accrue early as a bank grows from $10 million in loans to $3.3 billion, with 90 percent of the potential efficiency gains occurring by $300 million. JEL classification: G21, G28, L00. The views expressed are those of the authors and do not necessarily reflect the official positions of the Federal Deposit Insurance Corporation or the United States. FDIC Staff Studies can be cited without additional permission. The authors wish to thank Noam Weintraub for research assistance and seminar participants for helpful comments. Federal Deposit Insurance Corporation, [email protected], 550 17th St. NW, Washington, DC 20429 Federal Deposit Insurance Corporation, [email protected], 550 17th St. -
Assessing the Role of Scale Economies and Imperfect Competition in the Context of Agricultural Trade Liberalisation: a Canadian Case Study
ASSESSING THE ROLE OF SCALE ECONOMIES AND IMPERFECT COMPETITION IN THE CONTEXT OF AGRICULTURAL TRADE LIBERALISATION: A CANADIAN CASE STUDY Franqois Delorme and Dominique van der Mensbrugghe CONTENTS Introduction .............................................. 206 I. The implementation of scale economies in WALRAS ............ 207 A. Scale-economy parameters ............................ 209 B. Pricing strategies ................................... 21 1 II. Empirical results ....................................... 218 A. Perfect competition ................................. 220 B. Scale economies and oligopolistic behaviour ............... 222 111. Concluding remarks.. ................................... 225 Technical Annex ........................................... 230 Bibliography .............................................. 233 FranCois Delorme is an Administrator with the Growth Studies Division and Dominique van der Mensbrugghe was a Trainee with the Growth Studies Division. The authors are grateful to John P. Martin, Val Koromzay and Peter Sturm for many perceptive suggestions and substantial comments on an earlier draft. They are also indebted to Kym Anderson, Jean-Marc Burniaux, Avinash Dixit, Robert Ford, Richard Harris, lan Lienert, James Markusen, Victor Norman, J. David Richardson, Benoit Robidoux, Jeff Shafer and Anthony J. Venables for valuable discussions and comments during the course of this work. 205 INTRODUCTION One of the key characteristics of the WALRAS model [as described in Burniaux et a/. (1989)l is that it assumes that all markets are perfectly competi- tive and production takes place under constant returns to scale. In this case, supply curves are flat', although they shift as input prices change. Until recently, this modelling strategy was adopted by most applied general equilibrium (AGE) modellers, since such models are relatively easy to build and their properties are well understood. Simulations of trade liberalisation with such models tend to show rather "small" welfare gains, typically of the order of 1 per cent of GNP or less. -
Excess Capacity.Pdf
A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Todorova, Tamara Preprint Is There Excess Capacity Really? Theoretical and Practical Research in Economic Fields Suggested Citation: Todorova, Tamara (2015) : Is There Excess Capacity Really?, Theoretical and Practical Research in Economic Fields, ISSN 2068–7710, ASERS Publishing, s.l., Vol. 6, Iss. 2 (12) (Winter), pp. 127-143 This Version is available at: http://hdl.handle.net/10419/157217 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu Is There Excess Capacity Really? Tamara Todorova American University in Bulgaria Excess capacity is viewed as a distinctive feature and an essential inefficiency of monopolistic competition as the large-group case of imperfect competition. -
The Role of Government in China's Long
ECONOMIC RESEARCH FEDERAL RESERVE BANK OF ST. LOUIS WORKING PAPER SERIES The Visible Hand: The Role of Government in China’s Long-Awaited Industrial Revolution Authors George E. Fortier, and Yi Wen Working Paper Number 2016-016A Creation Date August 2016 Citable Link https://doi.org/10.20955/wp.2016.016 Fortier, G.E., Wen, Y., 2016; The Visible Hand: The Role of Government in China’s Suggested Citation Long-Awaited Industrial Revolution, Federal Reserve Bank of St. Louis Working Paper 2016-016. URL https://doi.org/10.20955/wp.2016.016 Published In Federal Reserve Bank of St. Louis Review Publisher Link https://doi.org/10.1080/14765284.2019.1582224 Federal Reserve Bank of St. Louis, Research Division, P.O. Box 442, St. Louis, MO 63166 The views expressed in this paper are those of the author(s) and do not necessarily reflect the views of the Federal Reserve System, the Board of Governors, or the regional Federal Reserve Banks. Federal Reserve Bank of St. Louis Working Papers are preliminary materials circulated to stimulate discussion and critical comment. The Visible Hand: The Role of Government in China’s Long-Awaited Industrial Revolution Yi Wen and George E. Fortier China is undergoing its long-awaited industrial revolution. There is no shortage of commentary and opinion on this dramatic period, but few have attempted to provide a coherent, in-depth, political- economic framework that explains the fundamental mechanisms behind China’s rapid industrializa- tion. This article reviews the New Stage Theory of economic development put forth by Wen (2016a). It illuminates the critical sequence of developmental stages since the reforms enacted by Deng Xiaoping in 1978: namely, small-scale commercialized agricultural production, proto-industrialization in the countryside, a formal industrial revolution based on mass production of labor-intensive light consumer goods, a sustainable “industrial trinity” boom in energy/motive power/infrastructure, and a second industrial revolution involving the mass production of heavy industrial goods. -
External Economies and International Trade Redux∗
EXTERNAL ECONOMIES AND INTERNATIONAL TRADE REDUX∗ GENE M. GROSSMAN AND ESTEBAN ROSSI-HANSBERG We study a world with national external economies of scale at the industry level. In contrast to the standard treatment with perfect competition and two industries, we assume Bertrand competition in a continuum of industries. With Bertrand competition, each firm can internalize the externalities from production by setting a price below those set by others. This out-of-equilibrium threat elimi- nates many of the “pathologies” of the standard treatment. There typically exists a unique equilibrium with trade guided by “natural” comparative advantage. And, when a country has CES preferences and any finite elasticity of substitution be- tween goods, gains from trade are ensured. I. INTRODUCTION External economies hold a central—albeit somewhat uncomfortable—place in the theory of international trade. Since Marshall (1890, 1930 [1879]) at least, economists have known that increasing returns can be an independent cause of trade and that the advantages that derive from large-scale production need not be confined within the boundaries of a firm. Marshallian exter- nalities arise when knowledge and other public inputs associated with a firm’s output spill over to the benefit of other industry par- ticipants. After Marshall’s initial explication of the idea, a lengthy debate ensued on whether an industry with external economies of scale could logically be modeled as perfectly competitive.1 Even af- ter the matter was finally resolved in the affirmative by Chipman (1970), trade economists continued to bemoan the “bewildering variety of equilibria [that provide] a taxonomy rather than a clear set of insights” (Krugman, 1995, p. -
The Role of Government in Chinas Long-Awaited Industrial Revolution
The Visible Hand: The Role of Government in China’s Long-Awaited Industrial Revolution Yi Wen and George E. Fortier China is undergoing its long-awaited industrial revolution. There is no shortage of commentary and opinion on this dramatic period, but few have attempted to provide a coherent, in-depth, political- economic framework that explains the fundamental mechanisms behind China’s rapid industrializa- tion. This article reviews the New Stage Theory of economic development put forth by Wen (2016a). It illuminates the critical sequence of developmental stages since the reforms enacted by Deng Xiaoping in 1978: namely, small-scale commercialized agricultural production, proto-industrialization in the countryside, a formal industrial revolution based on mass production of labor-intensive light consumer goods, a sustainable “industrial trinity” boom in energy/motive power/infrastructure, and a second industrial revolution involving the mass production of heavy industrial goods. This developmental sequence follows essentially the same pattern as Great Britain’s Industrial Revolution, despite sharp differences in political and institutional conditions. One of the key conclusions exemplified by China’s economic rise is that the extent of industrialization is limited by the extent of the market. One of the key strategies behind the creation and nurturing of a continually growing market in China is based on this premise: The free market is a public good that is very costly for nations to create and support. Market creation requires a powerful “mercantilist” state and the correct sequence of developmental stages; China has been successfully accomplishing its industrialization through these stages, backed by measured, targeted reforms and direct participation from its central and local governments. -
The Adoption of Mechanization, Labour Productivity and Household Income: Evidence from Rice Production in Thailand
A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Srisompun, Orawan; Athipanyakul, Thanaporn; Somporn Isvilanonda Working Paper The adoption of mechanization, labour productivity and household income: Evidence from rice production in Thailand TVSEP Working Paper, No. WP-016 Provided in Cooperation with: TVSEP - Thailand Vietnam Socio Economic Panel, Leibniz Universität Hannover Suggested Citation: Srisompun, Orawan; Athipanyakul, Thanaporn; Somporn Isvilanonda (2019) : The adoption of mechanization, labour productivity and household income: Evidence from rice production in Thailand, TVSEP Working Paper, No. WP-016, Leibniz Universität Hannover, Thailand Vietnam Socio Economic Panel (TVSEP), Hannover This Version is available at: http://hdl.handle.net/10419/208384 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen -
Industrialisation Unlocking the Efficiency and Agility of the Swiss Banking Industry
Industrialisation Unlocking the efficiency and agility of the Swiss banking industry August 2016 Contents 1. Introduction and key findings 01 2. Swiss banking: pressures continue 03 3. Industrialisation as response 06 4. Banks’ industrialisation plans 10 5. Our perspective: A call for action 22 Bibliography 29 Appendix 30 Authors & contributors 31 Acknowledgment We would like to thank all participating executives for their support in completing the survey and sharing their expertise in the interviews with us. Industrialisation | Unlocking the efficiency and agility of the Swiss banking industry 1. Introduction and key findings Since the financial crisis the Swiss Banking industry has been under tremendous pressure. An unfavourable economic climate, rising expectations of empowered customers, increased regulatory focus and intense on- and offshore competition have reduced the revenue margins as a percentage of assets under management of Swiss banks by 21 per cent between 2010 and 2015. Combined with the emergence of FinTech entrants and disruptive technologies, these trends are creating an urgent need for innovation, and also to cut costs and improve agility in order to fund and execute new business models. In recent years many banks have limited themselves to taking only tactical cost reduction measures. We believe it is now time to improve agility and efficiency by industrialising how banks operate. The objective of industrialisation is to eliminate redundancies, re-engineer the value chain, automate and standardise processes wherever possible, while providing transparency about the profit of activities. In collaboration with the Hochschule Luzern, Institut für Finanzdienstleistungen (IFZ), we have conducted an online survey and personal interviews with executives from Swiss banks on their current levels of industrialisation and their industrialisation strategies for the next five years.