ABSTRACT
The 'x' in 'x-efficiency' stands for a type of EFFICIENCY which NEO-CLASSICAL ECONOMICS assumes always exists: intra-firm efficiency. Accordingly, firms are assumed to minimize costs, to purchase and utilize all inputs efficiently. X-efficiency (XE) theory maintains that firms are internally efficient or x-efficient - achieving cost minimization - only when there is sufficient pressure for them to do so. Otherwise, sheltered from pressure, costs exceed minimum levels and they are x-inefficient. Neo-classical theory explains apparent deviations from cost minimization in terms of incomplete information or uncertainty facing decision-makers, transaction costs, PROPERTY RIGHTS or the utility gained by excess costs.
