Decreasing or constant returns to scale
cause no inefficiency because there is simply no profitable arbitrage opportunity under these circumstances.
The fact that, especially, the Barro and Sala-i-Martin studies find evidence that is compatible with the assumption of constant returns to scale
is somewhat surprising, because it is almost an article of faith of regional economists that production is characterised by substantial internal and external (agglomeration) economies of scale (Krugman, 1992).
PROOF: By constant returns to scale
and , we have [Mathematical Expression Omitted].
There are nearly constant returns to scale
in outpatient care for system members, and increasing returns to scale for independent hospitals.
If constant returns to scale
are assumed, then a doubling of inputs results in the doubling of number of baccalaureate degrees conferred.
As suggested earlier, theory suggests that firms should operate on a production function at constant returns to scale
(Hall et al.
The residual TFP method assumes essentially constant returns to scale
and Hicks neutral technical change.
On the other hand, the total return to investment exhibits decreasing or constant returns to scale
, so |y.
In particular, the CCR model assumes constant returns to scale
, while the additive model allows for the possibility of constant (C), increasing (I) or decreasing (D) returns.
In spite of this, the true model used to generate the date is the simple constant returns to scale
We have applied DEA under two possible returns to scale assumptions: (i) Constant returns to scale
, and (ii) Variable returns to scale.
DEA, a linear programming technique, was originally developed by Charnes, Cooper, and Rhoades (1978) with Constant Returns to Scale
(CRS) extended by Banker et al.