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X-efficiency, rent-seeking and social costs

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  • John Formby
  • James Keeler
  • Paul Thistle

Abstract

This paper investigates shifts in cost functions of monopoly and regulated firms operating under conditions of X-inefficiency and rent-seeking behavior. We show that X-inefficiency and rent seeking have significantly different implications for economic welfare. Distinctions are drawn between pecuniary and real X-inefficiency and between sunk and continuing rent-seeking costs. In general, for a given cost shift rent-seeking behavior implies larger social costs than does X-inefficiency theory. However, cost shifts caused by either X-inefficiency or rent seeking are observationally equivalent. This implies empirically measured cost shifts cannot unambiguously be attributed to either cause. Copyright Kluwer Academic Publishers 1988

Suggested Citation

  • John Formby & James Keeler & Paul Thistle, 1988. "X-efficiency, rent-seeking and social costs," Public Choice, Springer, vol. 57(2), pages 115-126, May.
    • Handle: RePEc:kap:pubcho:v:57:y:1988:i:2:p:115-126
    DOI: 10.1007/BF00052400
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    References listed on IDEAS

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    1. Leibenstein, Harvey, 1978. "On the Basic Proposition of X-Efficiency Theory," American Economic Review, American Economic Association, vol. 68(2), pages 328-332, May.
    2. repec:bla:econom:v:39:y:1972:i:155:p:301-08 is not listed on IDEAS
    3. Crain, W Mark & Zardkoohi, Asghar, 1980. "X-Inefficiency and Nonpecuniary Rewards in a Rent-Seeking Society: A Neglected Issue in the Property Rights Theory of the Firm," American Economic Review, American Economic Association, vol. 70(4), pages 784-792, September.
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    5. Harvey Leibenstein, 1975. "Aspects of the X-Efficiency Theory of the Firm," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 580-606, Autumn.
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    Cited by:

    1. E. Pasour, 1989. "Nonconventional costs of rent-seeking: X-inefficiency in the political process," Public Choice, Springer, vol. 63(1), pages 87-91, October.

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