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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.
This paper identifies the condition leading
to a progressive salary situation wherein the elasticity of compensation with
respect to ability is greater than unity, i.e.,
a small percentage advantage in ability results in a disproportional increase
in compensation. This analysis also helps explain the “superstar phenomenon”
made famous by Rosen (1981). Two assumptions are made. The first is that there
is a generalized Cobb-Douglas type of production function wherein different
hierarchies of employees of different abilities are viewed as distinct inputs.
The second is that the distribution of ability is bell-shaped or approximately
normally distributed, and can be approximated by a Poisson distribution. The
model is applied using average outgoing salaries of MBA students from different
universities compared to their average test scores.