What is ‘X-Efficiency’
X-efficiency is the degree of efficiency maintained by individuals and firms under conditions of imperfect competition. According to the neoclassical theory of economics, under perfect competition individuals and firms must maximize efficiency in order to succeed and make a profit; those who do not will fail and be forced to exit the market. However, x-efficiency theory asserts that under conditions of less-than-perfect competition, inefficiency may persist.
Explaining ‘X-Efficiency’
The concept of x-efficiency was proposed by economist Harvey Leibenstein in a 1966 paper. The theory of x-efficiency is controversial because it conflicts with the assumption of utility-maximizing behavior, a well-accepted axiom in economic theory. Instead, some economists argue that the concept of x-efficiency is merely the observance of workers’ utility-maximizing tradeoff between effort and leisure. Empirical evidence for the theory of x-efficiency is mixed.
Further Reading
- X-efficiency in Australian banking: An empirical investigation – www.sciencedirect.com [PDF]
- Cost X-efficiency in China's banking sector – www.sciencedirect.com [PDF]
- The X-efficiency in Islamic banks – papers.ssrn.com [PDF]
- Is there a liability of foreignness in global banking? An empirical test of banks' X‐efficiency – onlinelibrary.wiley.com [PDF]
- X‐efficiency and productivity change in Australian banking – onlinelibrary.wiley.com [PDF]
- Bank mergers, X‐efficiency, and the market for corporate control – www.emerald.com [PDF]
- The Empirical Analysis on the X-Efficiency of Chinese Commercial Banks [J] – en.cnki.com.cn [PDF]
- Estimates of X-Efficiency for the US Life Insurance Industry – books.google.com [PDF]
