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X-inefficiency model

A model in which there is a best-practice technology, and a unit (firm or country, for example) either has that technology or one not as good. No random factor could make a firm's production function better than that best-practice one. An organization is perfectly x-efficient if it produces the maximum output possible from its inputs? Or is there some connection between its choice of output levels and types and its x-efficiency? Sources of x-inefficiency discussed in the academic literature: n inertia in process; that is, doing things to minimize internal redesign from the way they were done last time, rather than in the most efficient way for current circumstances In prisoner's dilemma situations where an individual's effort is unobservable; lack of trust and lack of communication can contribute to this. It is hard for any individual to coordinate the agreement necessary to raise effort. (Leibenstein, Sept 1983 AER comment.) In Absence of knowledge (I haven't seen this discussed but it has to be out there.)

Source: econterms

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