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Retrospectives: X-Efficiency

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  • Michael Perelman
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    Abstract

    In a 1966 article in the American Economic Review , Harvey Leibenstein introduced the concept of "X-efficiency": the gap between ideal allocative efficiency and actually existing efficiency. Leibenstein insisted that absent strong competitive pressure, firms are unlikely to use their resources efficiently, and he suggested that X-efficiency is pervasive. Leibenstein, of course, was attacking a fundamental economic assumption: that firms minimize costs. The X-efficiency article created a firestorm of criticism. At the forefront of Leibenstein's powerful critics was George Stigler, who was very protective of classical price theory. In terms of rhetorical success, Stigler's combination of brilliance and bluster mostly carried the day. While Leibenstein's response to Stigler was well reasoned, it never resonated with many economists, and Leibenstein remains undeservedly underappreciated. Leibenstein's challenge is as relevant today as it ever was.

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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.25.4.211
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    Bibliographic Info

    Article provided by American Economic Association in its journal Journal of Economic Perspectives.

    Volume (Year): 25 (2011)
    Issue (Month): 4 (Fall)
    Pages: 211-22

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    Handle: RePEc:aea:jecper:v:25:y:2011:i:4:p:211-22

    Note: DOI: 10.1257/jep.25.4.211
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    1. Anonymous, 1962. "Book Reviews," Agricultural Economics Research, United States Department of Agriculture, Economic Research Service, issue 2.
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    12. Demsetz, Harold, 1993. "George J. Stigler: Midcentury Neoclassicalist with a Passion to Quantify," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 793-808, October.
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    16. Friedland, Claire, 1993. "On Stigler and Stiglerisms," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 780-83, October.
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    19. Reder, Melvin W, 1982. "Chicago Economics: Permanence and Change," Journal of Economic Literature, American Economic Association, vol. 20(1), pages 1-38, March.
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. “X-Efficiency,” M. Perelman (2011)
      by afinetheorem in A Fine Theorem on 2013-10-17 09:10:16

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