Engineering production function and choice of technique

This study deals with the selection of technological alternatives of production, a problem referred to as "choice of techniques" in economic theory. Selection of an appropriate technique (or a technological alternative) has to be made with respect to specified objectives and available resources. Selection of proper techniques from among many available alternatives has been one of the main tasks while planning for economic development. Generally, developing countries like India are handicapped by problems of scarcity of non-labour resources, abundant labour force, limited foreign aid, limited technical know-how etc. to mention but a few of them. Hence, detailed exercises on choice of techniques, separately for each sector of a given economy, taking all the related constraints and objectives into account, are of great significance for proper planning. The subject matter of this project work is one such exercise. The technical alternatives are identified through engineering analysis and the choice of techniques is made in the context of the objectives of economic planning. In particular, the implications of the distribution are investigated. This study is confined to the construction sector of the Indian economy. Construction includes buildings, road and bridges, dams, irrigation works, industrial plants etc. This study, however, covers only buildings and road construction. The two exercises (for buildings and roads) proceeded in the following way: First, the output is fixed as explained later in this chapter. Next, all the possible technical alternatives of producing this output are identified. Then, all the technical and economic constraints, it any, are formulated. Optimal levels of the technical alternatives with respect to the specified objective (cost minimisation or employment maximisation) are then obtained by means of a linear programming model. Various approaches have been adopted previously in dealing with the problems of choice of techniques. Generally, statistical data, cross-section or time series collected at the firm or plant level have been used in these approaches to identify various available alternative techniques. The results based on such ex-post data may not reveal the full potential flexibility and scope for choice of techniques. Analysis based on these data gets confined only to the range of statistical observations which may be quite narrow. In addition, these approaches generally identify only two factors, capital and labour, and treat them as homogeneous goods. Two points are to be noted here: (a) Only capital and labour are considered as variables and current inputs are not; this may be alright if the output is narrowly defined in which case, not much change in the levels of current inputs is expected between techniques. However, if output is defined by the functional needs that they satisfy, the changes in current inputs may become significant and should be considered while selecting techniques. (b) Capital and labour are in fact heterogenous. When capital is taken to be homogeneous it is assumed to be shiftable between techniques, which may not be important in choice of technique in a static framework. However, the assumption of homogeneity of labour and capital ignores the different skills of labour and types of capital required for different techniques and the various constraints on the availability of such skills and machines in the economic. Besides, it is necessary to identify labour of different income classes separately for a simultaneous analysis of choice of techniques in the context of income distribution in society.