UK Accounting Glossary
X-efficiency describes a company’s inability to get the maximum output for its inputs due to a lack of competitive pressure.
That part of overall efficiency which consists of getting the maximum output technically possible from any given inputs, or producing a given output with the fewest possible inputs.
X-efficiency thus implies the complete absence of slack in production.
Evidence for X-efficiency can take 2 forms. One is theoretical, showing that in principle better results are not obtainable.
The other is emperical, showing that no other firm or organisation is observed to do better.
X-inefficiency is the divergence of a firm’s observed behaviour in practice, influenced by a lack of competitive pressure, from efficient behaviour assumed or implied by economic theory.
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This glossary post was last updated: 5th May 2019.