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Retrospectives: X-Efficiency

  • Michael Perelman
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    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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    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 and Notes," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 30(04), December.
    2. Dean, James W & Perlman, Mark, 1998. "Harvey Leibenstein as a Pioneer of Our Time," Economic Journal, Royal Economic Society, vol. 108(446), pages 132-52, January.
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    6. 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.
    7. Alexander J. Field, 2003. "The Most Technologically Progressive Decade of the Century," American Economic Review, American Economic Association, vol. 93(4), pages 1399-1413, September.
    8. Anonymous, 1962. "Book Reviews," Agricultural Economics Research, United States Department of Agriculture, Economic Research Service, issue 1.
    9. Anonymous, 1962. "Book Reviews," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 6(02), December.
    10. Reder, Melvin W, 1982. "Chicago Economics: Permanence and Change," Journal of Economic Literature, American Economic Association, vol. 20(1), pages 1-38, March.
    11. Arnold C. Harberger, 1998. "Letter to a Younger Generation," CEMA Working Papers: Serie Documentos de Trabajo. 135, Universidad del CEMA.
    12. Joseph Farrell & Severin Borenstein, 2000. "Is Cost-Cutting Evidence of X-Inefficiency?," American Economic Review, American Economic Association, vol. 90(2), pages 224-227, May.
    13. Anonymous, 1962. "Book Reviews," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 6(01), September.
    14. 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. Stigler, George J, 1976. "The Xistence of X-Efficiency," American Economic Review, American Economic Association, vol. 66(1), pages 213-16, March.
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