X-efficiency, rent-seeking and social costs

John Formby, James Keeler and Paul Thistle

Public Choice, 1988, vol. 57, issue 2, 115-126

Abstract: This paper investigates shifts in cost functions of monopoly and regulated firms operating under conditions of X-inefficiency and rent-seeking behavior. We show that X-inefficiency and rent seeking have significantly different implications for economic welfare. Distinctions are drawn between pecuniary and real X-inefficiency and between sunk and continuing rent-seeking costs. In general, for a given cost shift rent-seeking behavior implies larger social costs than does X-inefficiency theory. However, cost shifts caused by either X-inefficiency or rent seeking are observationally equivalent. This implies empirically measured cost shifts cannot unambiguously be attributed to either cause. Copyright Kluwer Academic Publishers 1988

Date: 1988
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DOI: 10.1007/BF00052400

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