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.
References in periodicals archive ?
However, to the extent that they persist (as a result of non-tradeables or frictions), they represent a form of X-inefficiency. The optimal level of social capital thus minimizes X-inefficiency summed across both margins.
X-inefficiency has been estimated to be in the area of three percent of the GDP.
In an earlier generation of studies of US banks Berger Hunter and Timme (1993) argue that X-inefficiency constitutes 20 percent or more of bank costs.
This aligns with x-inefficiency theory, which says that inefficiency occurs when technical efficiency is not being achieved due to lack of competitive pressures (Feibenstein 1966; Leibenstein and Maital 1992).
X-Inefficiency: "X-Inefficiency" is defined as the excess of unnecessary cost as a percentage of actual cost--and it seems to increase with increasing size.
Roger Frantz, in the concluding chapter, notes that from the late 1960s through to 2002 approximately 80 journal articles were published trying to estimate the size of X-inefficiency and these studies consistently showed support for its existence across numerous industries and countries.
(4.) This theoretical view is consistent with that of economists who regard the technical inefficiency estimated by the stochastic frontier production model as X-inefficiency (e.g., Meeusen and van den Broeck, 1977).
Several chapters analyze various aspects of the problem of x-inefficiency. Individual chapters analyze social responsibility, the firm's relationship to the natural environment, and the issue of industrial policy.
One component represents X-inefficiency, and the other signifies random error.
Two X-inefficiency measures are derived, one from the stochastic cost frontier model and the other from the distribution-free model.
In a book devoted to the now mantra-like trilogy of waste, fraud, and abuse, McKinney (1986; 5) defined waste as "the unnecessary costs that result from inefficient or ineffective practices, systems, or controls." Recktenwald (1983; 52-53) identified six distinct kinds of government waste involving two kinds of welfare losses: costs unrequited by benefits (a situation he called Q-inefficiency) and excessive costs (X-inefficiency).
The banking literature also suggests that potential gains from the elimination of X-inefficiency exists in most bank mergers, but are frequently not realized [26; 29; 14; 5].