Q2 Z2,(Q2) Z2(Q2) - Institute for Water Resources - U.S. Army

of scale in both the scheduling of equipment and the sale of services.
We would also expect to find little association of indirect cost and
current output (EBM's). This is in fact what we find for the barge-
firm size regressions; both coefficients of BBM being small and insig-
nificant, both barge-firm size measures are negative and significant.
For the towboat-firm size regressions, however, the EEM coefficients
are large and significant, the towboat-firm size measure coefficients
are positive.
A clue to the explanation of this apparent contradiction can be
found in the fact that the contradiction occurs across the two sets of
firm size measures, each representing two different types of productive
capacity. No one of the firm size measures can be said to be better
than any of the others. These measures represent inputs to the produc-
tive process that are quite different and enter the production function
in quite different ways.
Suppose that the barge measure was the "correct" one, that is,
every firm in the industry uses barges in their production function in
exactly the same way. Suppose also, that the same is not true for tow-
boats. In particular, suppose that the barge fleet is used to capacity;
excess barges being chartered to other firms. On the other hand, tow-
boats are not used to capacity; if no work is available for a boat it
is allowed to sit in port. Under these assumptions, one would expect
larger increases in output from increasing the barge fleet by 10% than
from increasing the towboat input a proportional amount. Controlling
for output (EBM's) we would than expect to find lower average costs
per EBM to be associated with increases in the barge fleet; higher costs
per EBM to be associated with larger towboat fleets.
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