Technical Efficiency in the Indian Textiles Industry: A Nonparametric Analysis of Firm-Level Data

The Indian textiles industry is now at the crossroads with the phasing out of quota regime that prevailed under the Multi-Fiber Agreement (MFA) until the end of 2004. In the face of a full integration of the textiles sector in the WTO, maintaining and enhancing productive efficiency is a precondition for competitiveness of the Indian firms in the new liberalized world market. In this paper we use data obtained from the Annual Survey of Industries for a number of years to measure the levels of technical efficiency in the Indian textiles industry at the firm level. We use both a grand frontier applicable to all firms and a group frontier specific to firms from any individual state, ownership, or organization type in order to evaluate their efficiencies. This permits us to separately identify how locational, proprietary, and organizational characteristics of a firm affect its performance.

Emissions Control and the Regulation of Product Markets: The Case of Automobiles

The paper investigates alternative policies to regulate emissions from polluting product markets, specifically considering the case of the automobiles market. The two policies we consider are: a quota that limits the quantity produced of the polluting model and a more flexible average efficiency standard that requires a minimum energy efficiency across all models produced by a firm, similar to the US Corporate Average Fuel Economy (CAFE) standards. We use a duopoly model of vertical differentiation where firms produce both an economy (i.e., low polluting) version and a luxury (i.e., high polluting) version of a given product. We show that while a quota can raise firm profit over a certain range, CAFE always reduces firm profit relative to the pre-regulation. We also show that while the quota reduces emissions, it is possible that emissions increase under CAFE. The optimal policy choice will depend on the magnitude of unit damages. We show that when unit damages are sufficiently high, the quota policy is more efficient than the average efficiency standard. This suggests that instead of tightening CAFE to limit damages from emissions, policy makers can shift to a quota policy which is both welfare enhancing and more profitable for firms.