Resource use and Allocative Efficiency of Brick Production at Traditional Brick Kilns (Brick Manufacturing Units ) of North Sindh, Pakistan

Abstract

This article on resource use and allocative efficiency of brick production in North Sindh has objective of finding kiln’s ability to effectively use resources and to maximize profits at available technology and fixed factor level. It is about kiln sector’s economic efficiency. Sector’s returns to scale (ROS) tells elasticity of production at a kiln i.e. to check if any one kiln produces higher level of output from same level of inputs as compared to other kilns. Sample of 90 kilns is taken randomly. Survey and face to face interviews were taken. A kiln is allocative efficient (or price efficient) if it maximizes profits by equating MVP of each variable input to its price. MVP is additional or marginal revenue generated by adding one unit of resource or input. R represents Allocative efficiency which is MVP/MFC. MFC is Px (Input price of one unit). R value can be greater or less than 1. If R is equal to 1 it means that input is economically utilized. If R is less than 1 it means that input is over utilized. North Sindh Kilns are going through IRS (Increasing returns to scale) as elasticity of production (sum of all nine coefficients of production function) is greater than 1 i.e. 1.09. These kilns are technically efficient. Labour clay and water are underutilized while all other inputs are over utilized for an average North Sindh kiln. For small kiln clay, fuel and water are underutilized and rests are over utilized. For medium kiln clay, labour and water are underutilized and rests are over utilized. For large kiln clay, labour, maintenance and water are underutilized and rests are over utilized. Clay and water are underutilized throughout all kilns. Labour is over utilized only at small kilns. Land is underutilized only at large kilns. Fuel is over utilized only at small kilns. Transport, capital, FOH/Inventory are over utilized at all kiln types. Maintenance is underutilized only at large kilns. In regression utilization model if all the R values (representing allocative efficiency of kiln inputs) are zeroes, than there will be a loss of 1175473 bricks to owner of kiln. Only labor R, capital R and FOH (Factory Overhead) R are significant in the model. The best beta (coefficient) is that of FOH. Only land R is negatively (but insignificant in model) related to total production. It is recommended that those factors which are underutilized or overutilized at small, medium or large kilns have to be used optimum.