Effects of allocative inefficiency on resource allocation and energy substitution in Pakistan's manufacturing
Empirical economists often ignore that firms may not minimise costs in the presence of allocative inefficiency. Assuming strict cost minimisation when actually cost is not minimum may produce biased parameter estimates and elasticities. We consider a method for estimating effects of allocative ineff...
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Published in | Energy economics Vol. 26; no. 3; pp. 371 - 388 |
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Main Authors | , |
Format | Journal Article |
Language | English |
Published |
Amsterdam
Elsevier Science
01.05.2004
Elsevier Elsevier Science Ltd |
Series | Energy Economics |
Subjects | |
Online Access | Get full text |
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Summary: | Empirical economists often ignore that firms may not minimise costs in the presence of allocative inefficiency. Assuming strict cost minimisation when actually cost is not minimum may produce biased parameter estimates and elasticities. We consider a method for estimating effects of allocative inefficiency on resource allocation and factor substitution and apply it to data from Pakistan's manufacturing. Results show strong evidence of allocative inefficiency leading to over-utilization of raw material and capital viz-a-viz energy and labour, and increasing cost of production of firms by 1% per annum. Computed elasticities diverge from their true values in the presence of allocative inefficiency. [PUBLICATION ABSTRACT] |
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Bibliography: | ObjectType-Article-2 SourceType-Scholarly Journals-1 ObjectType-Feature-1 content type line 23 |
ISSN: | 0140-9883 1873-6181 |
DOI: | 10.1016/S0140-9883(04)00022-2 |