On the proper modelling of multioutput port cargo handling costs

Abstract

Cargo handling activities involve various heterogeneous outputs, e.g. general cargo, containers, dry and liquid bulk and so on. These activities in ports, however, have been usually analysed using aggregate descriptions of output such as total tons moved. The main purpose of this article is to show that ignoring this heterogeneity may lead to two types of problems: (i) the underestimation of the relevance of key dimensions (i.e. marginal costs per product and economies of scope) and (ii) a bias in the estimates of the relevance of other dimensions (economies of scale). To do so, we rely on a unique new dataset on three cargo handling firms operating in a Spanish port between 1991 and 1999. We use it to estimate both a multi-output cost for these three operators, as well as an aggregate cost function. The policy conclusions are derived from an explicit and detailed comparison of these two sets of estimates.

Acknowledgements

The authors are grateful to the reviewers of the journal for their suggestions. This research was partially funded with Grant 1050643 from Fondecyt-Chile, the Millenium Institute Complex Engineering Systems and Gobierno Autónomo de Canarias, Project PI2003/188.

Notes

¹ Total area, capital and intermediate consumption represent 13, 8 and 26% respectively.

² Note: 1 Euro (€) = 166.386 pesetas.

³ This section is based on Jara-Díaz et al. (2005).

⁴ The role that multioutput cost function estimation could play in the debate about regulation is recognised in other sectors as well. For example, Fraquelli et al. (2004) analysed scope and scale economies in multi-utilities; and Sav (2004) applied this methodology to the higher education for public and private sector.