A Bargaining Model of Farrell Inefficiency

Jonathan Haskel () and Amparo Sanchis-Llopis

No 1902, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: An enormous number of empirical papers have estimated technical efficiency, the distance of firms inside a frontier, following the model of Farrell (1957). We propose a theory that explains the distance these empirical papers seek to measure. The theory is based on the idea that workers can bargain low ‘effort’ (high crew sizes etc.) if they and the firm have some monopoly power. We provide simple theoretical expressions for the empirical measures of technical and allocative efficiency and compare them to those in the statistical literature. We consider the relation between competition and efficiency and show how the model extends readily to address public sector inefficiency, increasing returns and manager/firm agency problems.

Keywords: Competition; effort; technical efficiency; X-inefficiency (search for similar items in EconPapers)
JEL-codes: J24 L10 (search for similar items in EconPapers)
Date: 1998-06
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: A bargaining model of Farrell inefficiency (2000)
Working Paper: A Bargaining Model of Farrell Inefficiency (1998)
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