On estimating optimal α-returns to scale. Issue 1 (2nd January 2019) - Boussemart, Jean-Philippe
Abstract: From a theoretical point of view, α -returns to scale is a relevant alternative to traditional DEA models for estimating production technologies under global returns to scale assumptions such as strictly increasing or strictly decreasing returns to scale. However, from a methodological and empirical point of view, a remaining question is the estimation ofα . This contribution proposes an effective methodology to estimate an optimal value ofα based upon a goodness-of-fit strategy. A global method using a grid search is presented first. Second, for generalised FDH technologies, a minimum extrapolation principle is developed to estimate directly the optimalα -returns from a linear program. An illustration on 63 US industries over the period 1987–2012 shows the relevancy of our approach.