An analysis of returns to scale in public production, with an application to fire protection

This paper analyzes returns to scale in public production. Existing studies fail to differentiate among three dimensions of scale: service quality, the level of governmental activity, and the number of people served. A fourth dimension, economies of scope, is need for agencies that provide multiple services. This paper provides a formal definition of returns to scale for each dimension. This framework is applied to fire protection, using a translog cost function with two services, fire prevention and fire suppression. The results indicate economies of scope, increasing returns to quality scale, and constant returns to population scale.