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Are Indian Firms too Small? A Nonparametric Analysis of Cost Efficiency and the Optimal Organization of the Indian Manufacturing Industry

Author

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  • Subhash C. Ray

    (Department of Economics, University of Connecticut, Storrs CT, USA.)

Abstract

In this paper we use the 2004-05 Annual Survey of Industries data to estimate the levels of cost efficiency of Indian manufacturing in the various states and also get state level measures of industrial organization (IO) efficiency. The empirical results show the presence of considerable cost inefficiency in a majority of the states. Further, we also find that, on average, Indian firms are too small. Consolidating them to attain the optimal scale would further enhance efficiency and lower average cost.

Suggested Citation

  • Subhash C. Ray, 2009. "Are Indian Firms too Small? A Nonparametric Analysis of Cost Efficiency and the Optimal Organization of the Indian Manufacturing Industry," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 44(1), pages 49-67, July.
  • Handle: RePEc:dse:indecr:v:44:y:2009:i:1:p:49-67
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    References listed on IDEAS

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    1. James W. Friedman, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Oxford University Press, vol. 38(1), pages 1-12.
    2. William James Adams, 2006. "Markets: Beer in Germany and the United States," Journal of Economic Perspectives, American Economic Association, vol. 20(1), pages 189-205, Winter.
    3. Fisher, Franklin M & McGowan, John J, 1983. "On the Misuse of Accounting Rates of Return to Infer Monopoly Profits," American Economic Review, American Economic Association, vol. 73(1), pages 82-97, March.
    4. Bresnahan, Timothy F., 1982. "The oligopoly solution concept is identified," Economics Letters, Elsevier, vol. 10(1-2), pages 87-92.
    5. Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057 Elsevier.
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    Cited by:

    1. Subhash C. Ray, 2014. "Branching Efficiency in Indian Banking: An Analysis of a Demand-Constrained Network," Working papers 2014-34, University of Connecticut, Department of Economics.
    2. Ray, Subhash, 2016. "Cost efficiency in an Indian bank branch network: A centralized resource allocation model," Omega, Elsevier, vol. 65(C), pages 69-81.

    More about this item

    Keywords

    Data Envelopment Analysis; Efficient Production Scale; Industry Efficiency;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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