X-inefficiency financial definition of X-inefficiency
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Fig. 200 X-inefficiency.
X-inefficiency the ‘gap’ between the actual and minimum attainable supply cost. See Fig. 200 . The traditional THEORY OF SUPPLY assumes that firms always operate on their minimum attainable cost curves. In contrast, X-inefficiency postulates that firms typically operate with higher costs than this. This occurs, for example, because of inefficiencies in work organization (RESTRICTIVE LABOUR PRACTICES such as OVERMANNING, demarcation rules), in the coordination of activities (inefficient deployment and management of resources arising from bureaucratic rigidities), and in motivating workers to achieve maximum output. X-ineffciency is likely to be present in large organizations that lack effective competition ‘to keep them on their toes’ (especially MONOPOLIES). See also PRODUCTIVITY, ORGANIZATIONAL SLACK.