Administrative Intensity and Ratio Variables: The Case Against Definitional Dependency

The purpose of this paper is to report new evidence about economy of scale inferences based on administrative ratio and organization size. The definitional dependency argument is found to be incorrect. Experiments are reported in which economy of scale findings based on the administrative ratio are compared to findings based on other methods of analysis for known cases of administrative economies of scale, diseconomies of scale and constant returns to scale. These experiments indicate that correlation between administrative ratio and size yields accurate findings. Past empirical studies of administrative intensity are not invalidated by an inherent negative bias between administrative ratio and organization size.