ECONOMIES OF SIZE AND OPERATING EFFICIENCY OF LIVESTOCK MARKETS: A FRONTIER FUNCTION APPROACH
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A cost curve for livestock auction markets was estimated using a
frontier function estimator. This estimator has the advantages of
consistency and asymptotic efficiency (for certain disturbance
specifications). The one-sided residuals satisfy theoretical requirements for
cost curves and allow estimates of operational efficiency. Results indicate
little size savings above 50,000 LMU, (12 percent of markets in 1976).
Estimated operational inefficiencies ranged from 0 to 45 percent. Total
technical efficiency (size diseconomies plus operational inefficiencies) are
high for some markets and some size groups. Little consolidation is
predicted for the industry because the estimated cost of technical
inefficiency is small compared to distance related costs (e.g., transport and
shrink).