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A Bargaining Model of Farrell Inefficiency

Author

Listed:
  • Haskel, Jonathan
  • Sanchis, Amparo

Abstract

An enormous number of empirical papers have estimated technical efficiency, the distance of firms inside a frontier, following the model of Farrell (1957). We propose a theory that explains the distance these empirical papers seek to measure. The theory is based on the idea that workers can bargain low ‘effort’ (high crew sizes etc.) if they and the firm have some monopoly power. We provide simple theoretical expressions for the empirical measures of technical and allocative efficiency and compare them to those in the statistical literature. We consider the relation between competition and efficiency and show how the model extends readily to address public sector inefficiency, increasing returns and manager/firm agency problems.

Suggested Citation

  • Haskel, Jonathan & Sanchis, Amparo, 1998. "A Bargaining Model of Farrell Inefficiency," CEPR Discussion Papers 1902, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1902
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    Cited by:

    1. Mette Asmild & Peter Bogetoft & Jens Leth Hougaard, 2006. "Rationalising Inefficiency: A Study of Canadian Bank Branches," Occasional Papers 19, Industrial Economics Division.
    2. Peter Bogetoft & Jens Hougaard, 2003. "Rational Inefficiencies," Journal of Productivity Analysis, Springer, vol. 20(3), pages 243-271, November.
    3. repec:lic:licosd:26210 is not listed on IDEAS
    4. Ahmet Kara, 2009. "An applied stochastic model of the quality–quantity trade-off in the public health care sector," Quality & Quantity: International Journal of Methodology, Springer, vol. 43(2), pages 277-289, March.
    5. Sena, Vania, 2006. "The determinants of firms' performance: Can finance constraints improve technical efficiency?," European Journal of Operational Research, Elsevier, vol. 172(1), pages 311-325, July.
    6. Haskel, Jonathan & Sanchis, Amparo, 2000. "A bargaining model of Farrell inefficiency," International Journal of Industrial Organization, Elsevier, vol. 18(4), pages 539-556, May.
    7. Maliranta, Mika, 2002. "From R&D to Productivity Through Micro-Level Restructuring," Discussion Papers 795, The Research Institute of the Finnish Economy.

    More about this item

    Keywords

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    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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