X-Efficiency

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.

BREAKING DOWN '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.

RELATED TERMS
  1. Theory Of The Firm

    A microeconomic concept founded in neoclassical economics that ...
  2. Neoclassical Growth Theory

    An economic theory that outlines how a steady economic growth ...
  3. Accelerator Theory

    An economic theory that suggests that as demand or income increases ...
  4. Endogenous Growth Theory

    An economic theory which argues that economic growth is generated ...
  5. Revealed Preference

    An economic theory of consumption behavior which asserts that ...
  6. Neoclassical Economics

    An approach to economics that relates supply and demand to an ...
Related Articles
  1. Fundamental Analysis

    7 Controversial Investing Theories

    We take a closer look at the theories that attempt to explain and influence the market.
  2. Investing Basics

    Modern Portfolio Theory vs. Behavioral Finance

    Modern portfolio theory and behavioral finance represent differing schools of thought that attempt to explain investor behavior. Perhaps the easiest way to think about their arguments and positions ...
  3. Economics

    Understanding Conflict Theory

    Karl Marx advanced conflict theory, which claims society is in a state of perpetual conflict due to the competition for limited resources.
  4. Economics

    Perfect Competition

    Perfect competition is an economic idea that does not exist in the real world but can be used as a standard to measure the efficiency and effectiveness of real world markets.
  5. Economics

    Macroeconomics: Economic Systems

    By Stephen Simpson Within the study of macroeconomics, there are certain basic goals for economic systems. Generally speaking, desirable goals include economic growth, full employment, economic ...
  6. Active Trading Fundamentals

    Behavioral Finance: Background

    By Albert PhungBefore we go over the specific concepts behind behavioral finance, let's take a more general look at this branch of finance. In this section, we'll examine how it compares to conventional ...
  7. Options & Futures

    Nobel Winners Are Economic Prizes

    Before you try to profit from their theories, you should learn about the creators themselves.
  8. Economics

    Macroeconomics: Conclusion

    By Stephen Simpson Given the enormous scale of government budgets and the impact of economic policy on consumers and businesses, macroeconomics clearly concerns itself with significant issues. ...
  9. Active Trading

    Manipulating Facts to Fit a Theory: A Dangerous Trading Practice

    This practice is common with experienced and new traders, and it can lead to huge losses. Find out how to avoid it.
  10. Active Trading Fundamentals

    Dow Theory

    Learn about the foundation upon which technical analysis is based.
RELATED FAQS
  1. How does the neoclassical growth theory predict real GDP?

    Understand what neoclassical growth theory is and how the ideology come about. Learn how the neoclassical growth theory predict ... Read Answer >>
  2. Are perfect competition models in economics useful?

    Take a look at some of the arguments made by the proponents and critics of the theory of perfect competition in contemporary ... Read Answer >>
  3. What parameters are required for a market to exhibit perfect competition?

    Learn what parameters are required for a market to exhibit perfect competition and how perfect competition is more of a theory ... Read Answer >>
  4. Is a good's production cost related to its value?

    Learn about the history and debate regarding the metrics used to determine the value of a good and which theories place emphasis ... Read Answer >>
  5. What is the chaos theory?

    The chaos theory is a complicated and disputed mathematical theory that seeks to explain the effect of seemingly insignificant ... Read Answer >>
  6. How does neoclassical economics relate to neoliberalism?

    Read about neoliberalism and neoclassical economics, two political and economic movements that argued for lower taxes, less ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center