TESTING FOR VERTICAL ECONOMIES OF SCOPE - AN EXAMPLE FROM US PIG PRODUCTION

A firm operating in two or more stages of production is said to have v ertical economies of scope if the costs of jointly producing two or mo re vertically adjacent products is less than the costs of producing th e products independently. As important as those economies are in theor y, they have so far received no empirical treatment compared to scope economies in multi-output production, especially in agriculture. This paper tests for vertical economies of scope in US pig production, usin g 1990 firm-level cost data. Based on the Wilcoxon matched-pairs signe d-rank test, no evidence of vertical economies was found, meaning that it was no more or less costly to produce pork in a farrow-to-finish s etting than with separate feeder-pig production and finishing.