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- Title
X-inefficiency, Managerial Effort and Protection.
- Authors
Martin, John P.
- Abstract
Conventional static costs of protection studies always seem to come up with "small" numbers.¹ One reaction to these results is to argue that the standard analysis is deficient in that it ignores the "dynamic" effects of protection on competition and efficiency in the industries in question. This was the dominant theme in Scitovsky (1958), and in recent years it has gained increasing support with the growing literature on protection and X-(in)efficiency, e.g., Balassa (1975), Bergsman (1974). It is suggested that protection, by increasing X-inefficiency, has a major impact on welfare which is not accounted for in the conventional static costs. However, the welfare implications of X-inefficiency have been disputed by Corden (1970, 1974) and Stigler (1976). <BR> In this paper, following Corden, we stress the relationship between X-efficiency and effort. The impact of protection on X-inefficiency is analysed in both partial and general equilibrium. The aims of the paper are four-fold: (a) to present a simple definition of X-inefficiency that captures some of the essence of the concept; (b) to show what assumptions are needed to generate the result that protection increases X-inefficiency; (c) to demonstrate that even if protection increases X-inefficiency this may not be a welfare cost; and (d) to show under what conditions a tariff-induced increase in X-inefficiency will lead to a welfare loss in addition to the conventional costs of protection.
- Subjects
COST; INDUSTRIAL efficiency; WELFARE economics; ECONOMIC equilibrium; TARIFF
- Publication
Economica, 1978, Vol 45, Issue 179, p273
- ISSN
0013-0427
- Publication type
Article
- DOI
10.2307/2553072