TITLE:
Are There Economies of Scale in Highway Maintenance? What about Costs Due to Market Power?
AUTHORS:
Lawrence Southwick
KEYWORDS:
Scale Economies, Market Power, Municipal Highways
JOURNAL NAME:
iBusiness,
Vol.6 No.2,
June
3,
2014
ABSTRACT: The object of this
paper is to determine whether there are economies or diseconomies of scale in
highway maintenance and whether higher concentration levels/greater market
power across the governments involved in highway maintenance results in higher
or lower cost levels. The data used come from New York State municipalities.
New York is divided into Towns and Cities that added together give the total
land area for the State. There are also Villages that are located in one or
more Towns. All of these government entities may own and manage/maintain
highways. The results are that 1) there are significantly U-shaped average cost
curves, but the differences in average costs between communities with lower
numbers or higher numbers of lane miles than the most efficient are not very
great and 2) there are both substantial and significant increases in average
costs when market power is greater. Thus, making the case for mergers of
communities is more difficult and such mergers would be more problematic.