Evaluating the Costs of Energy Price Distortions in Iranian Textile Industry

According to neoclassical approach, input prices is a measure of resources scarcity induce firms to cost-minimizing and allocation of recourses in efficient behavior. But when prices are distorted and the lack of the effective competition inputs are used inefficiently, the result is under- or over-utilization of factors relative to their endowments or allocative inefficiency. In this paper, we consider a method for estimating allocative inefficiency using shadow cost approach and system of equations and apply it to data from 161 manufactures of textile during 2006-2007. Results show strong allocative inefficiency and increase in cost of production of firms by 23% of the production costs in studied period.