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. Imperfect Competition

    A type of market that does not operate under the rigid rules ...
  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. Imperfect Market

    A market where information is not quickly disclosed to all participants ...
  6. Revealed Preference

    An economic theory of consumption behavior which asserts that ...
Related Articles
  1. Trading

    7 Controversial Investing Theories

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

    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. Markets

    Understanding Imperfect Competition

    Imperfect competition appears in several different forms. Markets are evaluated by how they compare to, and try to approach, perfect competition.
  4. Trading

    Dow Theory: Current Relevance

    By Chad Langager and Casey Murphy, senior analyst of ChartAdvisor.comThere is little doubt that Dow theory is of major importance in the history of technical analysis. Many of its tenets and ...
  5. Investing

    Efficient Market Hypothesis

    An investment theory that states it is impossible to "beat the market".
  6. Trading

    Market Efficiency Basics

    Market efficiency theory states that a stock’s price will fully reflect all available and relevant information at any given time.
  7. Markets

    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.
  8. Markets

    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 ...
  9. Markets

    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.
  10. Trading

    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 ...
RELATED FAQS
  1. Do all economists believe in perfect competition?

    Find out why neoclassical economists use unrealistic perfect competition models, and learn why other economists criticize ... Read Answer >>
  2. 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 >>
  3. 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 >>
  4. What are the differences between weak, strong and semi-strong versions of the Efficient ...

    Discover how the efficient market theory is broken down into three versions, the hallmarks of each and the anomalies that ... Read Answer >>
  5. What is the difference between perfect and imperfect competition?

    Learn the differences between perfect competition and imperfect competition and what types of markets are considered imperfectly ... Read Answer >>
  6. 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 >>
Hot Definitions
  1. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  2. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  3. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  4. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  5. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  6. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
Trading Center