In this paper, I applied to bureaucracy Leibenstein's X-efficiency theory of the firm. X-inefficiency is contrasted to allocative efficiency. Inputs may be allocated to the right units for use. However, there is no need to presume that the decision an...
In this paper, I applied to bureaucracy Leibenstein's X-efficiency theory of the firm. X-inefficiency is contrasted to allocative efficiency. Inputs may be allocated to the right units for use. However, there is no need to presume that the decision and performance entities involved must use inputs as effectively as possible.
An individual in the organization has some discretions in his choice of APQT(Activities-Pace-Quality-Time) bundles (i.e. effort points), and so he can and umst interpret his job. If external or internal pressures decline, he gradually shifts his position in the direction of a reduction in the connectedness of effort points to firm objectives (effort entropy), resulting in increases in unit cost. X-inefficiency is designated as the difference between maximal effectiveness of the utilization of inputs and the actual efectiveness.
I demonstrated various causes of X-inefficiency in bureaucracy, some of which are (1) contracts for labor are incomplete, (2) the production function is not completely specified or known, (3) not all inputs are marketed, or, if marketed, they are not available on equal terms to all buyers, and (4) managements' aspiration levels are different. Futhermore, the lack of external pressures, such as competitive pressure, can result in X-inefficiency in bureaucracy.
To struggle against effort entropy and to avoid cost increase can we devise many methods such as (1) the introduction and strengthening of incentive system, (2) the change of management/leadership style, (3) the alteration of organization structure, (4) the introduction of control system. But more powerful and less costly method than these may be the introduction of competition into bureaucracy. As Leibenstein indicated, discretion in the choice of APQT bundles can be reduced by promoting competition between organizations. Competition reduces X-inefficiency and unit cost than monopoly does.
Leibenstein's identification of X-efficiency forms one of the vital links between the economic analysis of organizations and the sociological and management (or administrative) analysis. The concept of X-efficiency represents a common meeting ground for economics and science of public administration.