Costs and Returns to Scale in U.S. Post Offices

Abstract

This article treats post offices as multiproduct firms, specifying a production correspondence, behavioral formulation and resultant cost and derived-demand functions. These functions are estimated over 156 offices. Overall returns to scale parameters are estimated, but it appears advisable to break the national sample into three subsamples. An optimally efficient size of office is found. Deviations from the cost function indicate costliness which varies significantly over postal regions. This suggests a geographical influence on productivity probably due to differences in labor quality. Marginal costs for several types of mail are derived.