X-efficiency Theory Research Articles

Perceptions of Energy Resources Efficiency for Sustainable Development in the Developing Context of Nigeria: Implications for Enterprise Development in the Energy Sector

Energy resources are indispensable to humans, animals, and plants. From the perspective of energy economics, energy efficiency has a high propensity to stimulate a development process that is environmentally, economically, and socially sustainable. Most developed countries are known to have attained energy efficiency, but the developing countries arguably still contend with energy inefficiency. In view of the foregoing, this study investigates the perceptions of energy resources efficiency for sustainable development in the developing context of Nigeria including implications for enterprise development in the energy sector. The study adopts a quantitative research method, a positivist research paradigm in order to generate fact-based information from energy users in the developing context. A sample of 400 respondents that comprised academics, professionals, business owners, policymakers, and activists working with the non-governmental organisations (NGOs) was selected, but 154 finally participated. The first finding reveals that Nigeria has eleven (11) energy resources, but the energy resource with the highest efficiency perception is fuel-wood and the least efficient is hydropower when measured in terms of stability, delivery system, reliability, resource mix, security, livelihood, and safety of energy products to the energy users. The second finding suggests that energy resources efficiency (EFF) exerts significant positive effect on the triple dimensions of sustainable development (ECS, SOS, and EVS) in the developing context of Nigeria, but the predictability is weak (42.6%, Adjusted R2). An indication that more rigorous study in required. The study contributes to the debates on energy resources efficiency and three pillars of sustainable development from the developing country context. In practical terms, the study supports and validates the X-Efficiency theory (XET) and the Resource Curse Theory (RCT).

Understanding Systemic Social Problems: Moving Beyond the Limits of Leibenstein’s X-Efficiency Theory— An Essay in Theoretical Behavioral Social Policy

This paper takes on the issue of systemic social problems by looking at a suitable extension and adaptation of Leibenstein's X-efficiency theory from a transdisciplinary perspective.

Policy Consequences of Multiple Equilibria and the Indeterminacy of Economic Outcomes in a Boundedly Rational World: Closing the System with Non-Economic Variables

In the conventional economic wisdom, the notion of unique equilibria that are efficient and Pareto optimal dominates the modeling discourse. Hebert Simon proposed an alternative analytical framework where the notion of multiple and sustainable equilibria is critical. Multiple equilibrium is the crucial stylized fact of economic life that requires better understanding and modeling. Of particular significance, Simon touched on the importance of institutions and differential power relationships in affecting economic outcomes. But this modeling approach was not well developed by Simon. Following from his contributions, further develop the notion of multiple equilibria especially in the realm of production with an emphasis on x-efficiency theory. I bring to bear the importance of institutional parameters (including power relationships), culture, norms, ethics, and moral sentiments to the determination of economic outcomes. In the model developed here, boundedly rational decision-makers’ choices are contextualized and constrained by complex environmental factors. No one choice is either inevitable or economically efficient. A multiplicity of outcomes is possible and sustainable inclusive of those that are suboptimal. Much depends on individual preferences and institutional design. This has significant implication for institutional design and policy.

X-Efficiency among Chinese Banks

X-efficiency is a non-allocative form of efficiency first introduced by Harvey Leibenstein in 1966. The degree of X-efficiency is measured by the deviation of a firm’s costs of production from the technologically minimum costs of production. X-efficiency theory predicts that firms will produce closer to their cost function when they face pressure to do so. In this paper we review studies of X-efficiency among Chinese banks. These studies include the effect of ownership form, for example, state-owned banks versus privately-owned banks, on costs of production. China’s entrance into the WTO, the effect of a bank issuing an IPO and the effect of bank size are other topics of empirical studies reviewed in this paper. In addition some studies on Hong Kong banks before 1997 are included.

The Living Wage, Economic Efficiency, and Socio-Economic Wellbeing in a Competitive Market Economy

Conventional economic wisdom views a Living Wage as costly in term of economic efficiency and competitiveness. I argue, based on x-efficiency theory, that higher wages need not cause any economic harm and can, on the contrary, generate higher levels of material wellbeing. Higher wages can be expected to induce x-efficiency and technological change cost offsets. In this context, an effective living wage, one that is above some subsistence minimum, can have a net efficiency effect on the economy. Therefore, a living wage greater than the wage rate generated by the free market cannot be predicted to generate economic harm. With the institutional parameters in place to realize a living wage, the economic pie can be expected to grow to accommodate the living wage.

What is Behavioral Economics?

This paper is concerned with defining the characteristics of behavioral economics (BE), identifying the different strands of BE, and carefully comparing BE to mainstream or orthodox economics. An important question here is: Is BE an economic school of thought? It is noteworthy that BE is not strongly associated with a political economic ideology or particular substantive propositions as is the case with some other economic schools of thought. What distinguishes BE is its scientific practices and its guiding notions of what good scientific practice ought to be. In other words, BEs practice and espouse scientific methods that are different, at least, from those typical of mainstream economics (ME). This paper develops an approach to comparing BE to other types of economics. The job of comparison is first to identify the key dimensions (related to its approach to science) along which BE, and its different strands, differs from ME, and second to use these dimensions to illustrate the differences. The desired dimensions of comparison are ones for which there are critical and important differences between BE and ME. Further, these dimensional differences are related to BE's critique of ME and how behavioral economists describe their attempts to distinguish themselves from ME. The dimensions selected for this use are: 1) narrowness, 2) rigidity, 3) intolerance, 4) mechanicalness, 5) separateness, and 6) individualism. Comparing economic disciplines using the comparison dimensions is like locating places on a map, except that the map of the economic disciplines is a six dimensional one, not a two dimensional one. To locate a discipline on the map, it is necessary to have judgments of the discipline's location on each of the six dimensions. In a sense, we are discovering what BE is partly by finding out its characteristics, but partly by finding out its differences from certain other well known entities (disciplines). After using these dimensions to characterize ME, they are used to characterize BE's strands starting with the two earliest strands of BE, those emanating from the work of Herbert Simon and George Katona. The other strands of BE considered here are psychological economics, Harvey Leibenstein's x-efficiency theory, George Akerlof and behavioral macroeconomics, behavioral finance, Vernon Smith and experimental economics, and the evolutionary theory of Richard Nelson and Sidney Winter. Other elements of BE that can not be classified in these strands are also considered.

The behavioral economics of George Akerloff and Harvey Leibenstein

Behavioral economics is now receiving greater acceptance in the economics profession. One illustration of this acceptance is the Nobel Prize awarded to George Akerloff in 2001. Akerloff’s work included issues of rationality, work norms, and asymmetric information in both more and less developed countries. Leibenstein was one of the first economists in recent decades to explore behavioral economics. This was accomplished through his development of X-efficiency theory, but not exclusively through X-efficiency theory. This paper will show similarities in the work done by Akerloff and Leibenstein, and cite examples of how Akerloff extended some of Leibenstein’s work, leading to Akerloff’s much deserved Nobel Prize.

Performance Indicators in Academia: An X‐Efficiency Approach?

This article utilises three different perspectives to evaluate the uses of performance indicators in Australian higher education: federalism, neoclassical economics and X‐efficiency theory. The introduction of performance indicators by the Commonwealth government is associated with providing the most efficient path for the allocation and distribution of scarce resources in higher education (neoclassical economics), increasing its control over the universities (federalism theory), and applying pressure to them and in turn their academic members to increase their effort levels (X‐efficiency theory). X‐efficiency theory is proposed as a possible model to support and inform efforts to better understand and improve the operation of performance indicators.

The xistence of definitional economics--Stigler's and Leibenstein's war of the words

The inability to agree on definitions ultimately can condemn economic analysis and debate to fruitless argumentation. The sharp interchange between Stigler and Leibenstein did little to clarify the issues surrounding the controversial theory of X-efficiency. Given their conflicting agendas, discussion between these two opponents consisted largely of talking at cross purposes. This paper examines the motivations of the two protagonists as well as considering the impact such tactics have on economic debate and discussion. Copyright 2002, Oxford University Press.

Understanding variations in hospital costs: An economics perspective

This article provides a review of factors that cause hospital costs to vary. Examples of public policy issues and strategic management issues related to hospital cost variations are presented. Two commonly used theoretical perspectives for studying costs, microeconomic theory and industrial organization theory, are briefly reviewed. The article concludes with suggestions for future research including the application of a different theoretical perspective, X-efficiency Theory.

Market liberalization and the psychology of firm performance

In this paper we study whether the progressive liberalization of the U.S. telecommunications industry has altered the psychology of firms' behavior and led to performance changes. A detailed theoretical framework is developed, based on extension of the postulates of x-efficiency theory. Such an extension of x-efficiency theory enables us to make predictions regarding the direction of performance changes and whether among the various measures of performance there are likely to be cross-sectional differences, even as these different measures change over time. Two performance measures are computed. The first measures the ability of firms to maximize revenues, given their resources; the second measures their ability to reduce costs given the level of outputs generated. We find that market liberalization has significantly impacted the internal psychology within firms, in encouraging both entrepreneurially-oriented and productivity-oriented behavior. However, over time as the market gets more and more liberalized it is the entrepreneurially-oriented behavior that is dominant. We also examine whether ownership differences cause divergences among the firms studied in behavior and performance. We find that erstwhile AT&T-owned firms are always superior to independents in revenue-maximizing skills, but in an era of monopoly were not cost minimizers. In a liberalized environment their cost minimization skills are also superior to the independent firms.

Towards a general theory of X-efficiency

The principal discretionary variable for a person seeking to improve his lot is efficiency. Efficiency is determined jointly by interacting economic and psychological variables, with intertemporal feedbacks. This article explores a dynamic framework that illustrates how the key facets in the economic life of an individual—exertion, output, income, consumption, saving, and utility—constitute an interwoven network. The network is specified, and special attention is given to two of the linkages: effort choice and the intertemporal relationship of utilities. The neo-classical Ramsey model is shown to be a limiting case of the more general behavioral model based on the Matching Law in psychology. X-inefficiency is then defined by the deviation from the Ramsey Path.

Nonconventional costs of rent-seeking: X-inefficiency in the political process

There is relatively little controversy about the expenditures of time and money devoted to lobbying, campaign contributions, and so on that bias the political process. However, these traditional rent-seeking costs appear to be quite different from nonconventional costs of rent-seeking such as those associated with the lack of information about policies that distort the democratic process. It is likely that deviations from the ideal pattern of behavior arise not only in markets but also in the democratic process (as Tullock suggests) because voters are not properly informed. The problem of identifying waste due to lack of motivation and/or information is similar whether in the political arena or in market activities. In neither situation is X-efficiency observable. Ex post there will always be situations in which it is obvious that potential opportunities were foregone, but to the extent that such “wastes” either in markets or in the political process cannot be avoided, they have no importance for identification of inefficiency or for public policy. The conclusion is that X-efficiency theory contributes little to our understanding of rent-seeking actions by individuals and groups to obtain transfers of wealth through the political process.

Organizational economics and institutions as missing elements in economic development analysis

The main objective of this paper is to apply X-efficiency theory to the analysis of organizations and state enterprises with special reference to developing countries. In particular, the black box relating to the internal operation of organizations is opened up to understand better the decision mechanisms operating within firms and institutions. Intrafirm conventions are explored as they relate to the impact of external and internal pressures on the decision-making process. Implications are drawn to improve the internal efficiency of institutions in developing countries.

Entrepreneurship, entrepreneurial training, and x-efficiency theory

A basic motivational component of entrepreneurship is an individual's commitment to overcome gaps and obstacles in imperfect markets. Research associated with n Achievement theory indicates the possibility of the selection and training of potential entrepreneurs, and therefore a means to increase the supply of entrepreneurs. A tendency to glorify entrepreneurship, and the use of a ‘tight’ equilibrium concept, make it difficult to integrate entrepreneurship into standard economic theory, despite the desirability of doing so. X-efficiency theory accommodates a non-heroic view of entrepreneurs, which in turn allows for the inclusion or entrepreneurial training in the model.

Farming, rationality, and craftship: Beyond X-efficiency

Recent theoretical developments in economic theory have attempted to relax the assumption that human behavior is guided by “tight calculation” of profit-maximization. Harvey Liebenstein's notion of X-efficiency is a particularly important development in this regard. This article argues, however, that X-efficiency theory does not go far enough in relaxing the assumptions of economic theory. The understanding of human behavior requires a recognition of variability in the ends or goals of action as well as variability in the means which are utilized in the pursuit of these diverse ends. Max Weber's concepts of formal rationality and substantive rationality recognize this variability in the ends toward which action is oriented as well as the intrusion of habit or routine in the “calculatedness” of social and economic action. C. Wright Mills' ideal of craftship is used to represent a type of substantive rationality which contrasts with the formal rationality of calculation toward profit-maximization. The case is made that craftship is a particularly significant substantive rationality in American agriculture. It is argued that, among family farmers, other values, such as autonomy in one's work, often constitute alternative ends toward which action may be directed. Such ends may, in fact, conflict with the goal of profit-maximization. It is concluded that agricultural policy analysis and prescription which fails to consider the significant role of substantive rationalities, such as craftship, are likely to reproduce and enhance the conditions from which the present crisis in agriculture has developed.

Worker Motivation and X-Efficiency Theory: A Comment

(1982). Worker Motivation and X-Efficiency Theory: A Comment. Journal of Economic Issues: Vol. 16, No. 3, pp. 864-869.

Allocative and X-efficiency in state-owned mining enterprises: Comparisons between Bolivia and Indonesia

This paper deals with “efficiency” issues in state-owned enterprises mining minerals in Indonesia and Bolivia. In the enterprises under comparison, welfare losses from Alocative inefficiency appear to be decidedly nontrivial. Cases of behavior consistent with X-efficiency theory are also presented, but no determination of the relative quantitative importance of allocative and X-inefficiencies is attempted. Nevertheless, many of the insights offered by X-efficiency theory may be promising complementary tools for understanding and evaluating the performance of state-owned enterprises in mixed economies.

Inflation, Income Distribution and X-Efficiency Theory.

Inflation, Income Distribution and X-Efficiency Theory Inflation, Income Distribution and X-Efficiency Theory. By Harvey Leibenstein. (London: Croom Helm, 1980. Pp. 122. £9.95.) Julian Le Grand Julian Le Grand London School of Economics Search for other works by this author on: Oxford Academic Google Scholar The Economic Journal, Volume 91, Issue 361, 1 March 1981, Pages 267–268, https://doi.org/10.2307/2231729 Published: 01 March 1981

An Assessment of X-Efficiency Gained Through Competition

The X-efficiency concept was developed in a landmark article by Harvey Leibenstein (1966). Essentially, the theory explains that, for a variety of reasons, neither organizations nor people work as efficiently or effectively as they could. Leibenstein points out that competition, in an important way, affects the intensity with which firms and people work; where competitive pressure is light, many people trade the disutility of greater effort, of search, and the control of other peoples' activities for the utility of feeling less pressure and of better interpersonal relations. The theory postulates the tendency for a firm's costs to be lower whenever it faces competition because of variable performance with a given level of inputs. The purpose of this article is to examine the competitive aspect of the X-efficiency theory and to assess its validity. This additional study is justified because in neither the studies cited by Leibenstein nor in subsequent studies was the impact of competition on firm costs evaluated empirically. This deficiency seems to be significant because Leibenstein emphasized the importance of the competitive effects in the theory of X-efficiency.