Working Papers

1991

 

February 1991, No. 91-3

Scope Economies: Fixed Costs, Complementarity, and Functional Form

Lawrence B. Pulley and David B. Humphrey

Bank scope economies have been derived from either the standard or generalized (Box-Cox) multiproduct translog (or other logarithmic) functional form. Reported results have ranged from strong economies to diseconomies and are far from conclusive. The problem is functional form. An alternative composite form is shown to yield stable SCOPE results both at the usual point of evaluation and for points associated with quasi-specialized production (QSCOPE). Unstable results are obtained for the other forms. Scope economies are shown to exist for large U.S. banks in 1988 and to depend on the number of banking outputs specified. The scope estimates are also separated into their two sources - fixed-cost and cost-complementarity effects.

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