X-EFFICIENCY AND TECHNICAL EFFICIENCY

Efficiency measurement has become a very popular field in applied econ omics in recent years, and with this interest there has been a large i ntellectual investment in refining the empirical methods available to researchers in the area. In this paper we relate these developments to Harvey Leibenstein's original 1966 insight into the psychological ide as underlying the notion that economic agents may not achieve maximal efficiency in their productive decisions and behaviour. Of course, it is always possible to argue that apparent inefficiency only arises fro m a failure of the observer to realise what it is that is being maximi zed. However, we evade this easy escape route into non-falsifiable hyp othesizing, and instead take at face value the fact that too many empi rical studies have come up with substantial measures of inefficiency f or us to ignore its importance for normative economics.