In this paper we generalize the concept of scale elasticity to accommodate changes in any direction in the input-output space and not only in the radial input and output directions as was done so far with the conventional scale elasticity measure. Our departure point is that we view the scale elasticity as a directional derivative measure. Then for any functional representation of the technology and at a given point in the input-output space, the scale elasticity can be computed along any direction. By adjusting accordingly the direction vector we can measure appropriately factor returns with technologies exhibiting weak disposability of outputs and/or inputs. In addition, we do not have to restrict the analysis to only equi-proportional changes.

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ERIM Top-Core Articles
Journal of Productivity Analysis
Rotterdam School of Management (RSM), Erasmus University

Balk, B.M, Färe, R, & Karagiannis, G. (2014). On directional scale elasticities. Journal of Productivity Analysis. doi:10.1007/s11123-014-0399-6