Analysis of cost function of Thailand Food and Drug Administration

Abstract

To construct and estimate the cost function of Thailand Food and Drug Administration, as a tool for providing the direction with respect to the efficient allocation of resources in budget planning. This study classified cost function into three functional groups, including pre-marketing system, post-marketing system and the other system. The explanatory variables required to estimate the cost functions, included the input prices, output volumes and dummy variables which represented as reforms. Time series data was collected during 1980-2005 of the fiscal year. This study used the econometrics tool to estimate the translog cost function model in term of cost share equation. In addition, Seemingly Unrelated Regression Estimation (SURE) method was used to estimate the system equation This study demonstrates the way for analysis of cost function. The empirical results found that the cost function of pre-marketing system, post-marketing system and the other system demonstrated the goodness of fit as 77% 88% and 78%, respectively which were represented by the statistical R [superscript 2] values. In addition, this study found that the product registration approval in pre-marketing system affected to increase the cost share of labor factor, moreover, the manufacturing and product inspection in post-marketing system affected to rise in cost share of capital factors. These results bring to an important issue of more efficient resource allocation. Thai FDA should allocate resources by supporting more capital inputs to the post-marketing system. At the same time, Thai FDA ought to shift the labor inputs from such systems to the product registration in pre-marketing system by using appropriate proportion. This can maximize the utilization of limited resources, and increase the whole outputs of Thai FDA.