Working Paper: CEPR ID: DP1902
Authors: Jonathan Haskel; Amparo Sanchis
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: technical efficiency; competition; x-inefficiency; effort
JEL Codes: J24; L10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Competition (L13) | Worker Effort (J29) |
| Worker Effort (J29) | Technical Efficiency (D61) |
| Competition (L13) | Technical Efficiency (D61) |
| Worker Bargaining (J52) | Productive Inefficiency (D24) |
| High Wages (J31) | Allocative Inefficiency (D61) |