|M.Sc Student||Karp Amalia|
|Subject||Subsidy Induced Inefficiency in Industrial Piants in Periphe|
|Department||Department of Architecture and Town Planning||Supervisor||Professor Daniel Czamanski|
The state of Israel considers populations dispersal as central, among its objectives. In order to achieve this objective different policy means, mostly economic, were developed. In developing policy means emphasis was placed on job creation for the population, mainly through industry development.
Statutory wise, in incentives and supports to the industrial sector are offered under "the law for the encouragement of Capital Investment” which was passed in 1950, reassessed and redrawn in 1959.
This study examines one component of ‘The Law for the Encouragement of Capital Investment” - the “Economic Efficiency” one. The hypothesis of this study is that the examination of the economic activity of a firm in peripheral regions, entitled to the incentives offered by the law, will indicate the existence of inefficiency. A fact which is influenced by the government's goal to achieve planned population distribution.
In order to estimate economic efficiency there is a need for a method of estimating efficiency. Despite its importance, such a method, accepted by most researchers hasn’t been developed yet. This study is based on a procedure developed by Henderson.
Henderson's model is based on the fact that the optimized cost function includes information concerning the outputs and prices inputs but dues not reflect the inputs quantities. The model is built on the comparable basis of costs functions over the years. Namely, the examination of the causes of the annual growth in the cost of the firm. If the cost's growth derives from the growth of out puts or allocation of input prices, inefficiency is not the factor. However, if the firm's growth of cost derives from the ratio of the input quantities, it can be assumed that factor of inefficiency exists.
This hypothesis has been tested on the basis of Henderson's model, through a case study. The firm, located in a development region in Israel, is operating, according to the tests results, inefficiently.