There are limited returns to scale
in the craft beer space.
Farms' technical efficiency is fully depended on the type of returns to scale
. The Charnes, Cooper and Rhodes (CCR) model is based on the assumption of constant returns to scale
(CRS) to estimate the gross efficiency; while the BCC (Banker, Chames and Cooper) model is based on variable returns to scale
(VRS) to calculate pure technical efficiency (Ramanathan, 2003).
Data Envelopment Analysis (DEA) is applied for constant returns to scale
(CRS) and variable returns to scale
(VRS) efficiency scores.
The underlying production function that will be used is of the CES type, allowing for the possibility of efficiency changes and non-constant returns to scale
as shown in equation (1):
b) Which returns to scale
to consider for analysis?
When we say constant returns to scale
, we refer to the mix of inputs and corresponding impact on output.
One is constant returns to scale
. This is the absence of either economies or diseconomies of scale.
Elsewhere in Asia, only the top two players in convenience store chains tend to be profitable due to the intensity of the logistics requirements that drive returns to scale
The basic assumption of the CCR model is that the returns to scale
are constant (a stable underlying process).
They predicted that given the assumptions of identical technology and constant returns to scale
, a country would tend to export a commodity which requires the intensive use of the country's relatively abundant factor.
Nevertheless, this approach is only valid under the variable returns to scale
condition; moreover, it does not reflect a logical production possibility set.
Output oriented super slacks based model of data envelopment analysis was applied under constant returns to scale