Utilisation of Quasi-Fixed Inputs and Estimation of Cost Functions. An Application to Airline Costs

Utilisation of Quasi-Fixed Inputs and Estimation of Cost Functions. An Application to Airline Costs

This paper shows that the use of capital stock as an argument in a variable cost function without taking into account the utilisation of the capital stock can bias the estimates. The authors propose an alternative specification. Their application to the Canadian airline industry reveals higher returns to scale than that obtained by conventional specification.

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