X.Effeciency

3. X-EFFICIENCY: THE INTELLECTUAL SETTING AND AN INTRODUCTION TO THE THEORY 3.1. INTRODUCTION In the previous chapter, we reviewed microeconomic theory with respect to production, bell, and the welfargon cost of monopoly power. We know that microeconomics assumes that the firm is a cost minimizer and that efficiency meaning allocative efficiency. That is, the firm produces maximum output for given inputs, incurs minimum its cost for a given output, and only markets can be inefficient. Leibenstein questioned these assumptions in postulating a nonallocative type of (in)efficiency. In 1966 he called it X-efficiency. Data from both(prenominal) industrialized and less developed countries, showing that firms were neither constantly internally efficient nor al appearances maximizing their profits, led him to hire the existence of an X(in)efficiency. Leibenstein was not the only one at this date who was mocking the assumptions of microeconomics. Scitovsky, Baumol, Williamson, Marris, Simon, Tullock, and Monsen and Downs, among others were questioning the profit-maximization assumption. For each of these writers, the firm is assumed to maximise something other than profits: the firm has a complex purpose function.

Tullock was questioning the cost-minimization assumption, but in a assorted appearance and with his eyes on a different prize than Leibenstein. Simon was questioning the rationality postulate of economic theory, and along with his colleagues at Cyert and attest was delving into the internal workings of the firm. Leibensteins work, while similar to theirs, was also different in important aspects. In this chapter I shall discuss the way in which Leibensteins work differed from that of these other authors, the data that motivated Leibenstein and his certain statement of XE theory, and Leibensteins original formulation of XE theory. 3.2. COMPLEX OBJECTIVE FUNCTIONS 3.2.1. Introduction Nonprofit objectives of individuals and groups within firms are certainly neither a startling... If you want to get a full essay, order it on our website: Ordercustompaper.com

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