A bargaining model of Farrell inefficiency

An enormous number of empirical papers have estimated technical efficiency, the distance of firms inside a frontier, following the model of Farrell (Farrell, 1957. The measurement of productive efficiency. Journal of the Royal Statistical Society Series A 120 (3), 253–290). We propose a theory that...

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Bibliographic Details
Published in:International journal of industrial organization 2000-05, Vol.18 (4), p.539-556
Main Authors: Haskel, Jonathan, Sanchis, Amparo
Format: Article
Language:English
Subjects:
Bargaining
Competition
Economic efficiency
Economic models
Economic theory
Efficiency
Effort
Industrial economics
Monopolies
Statistical analysis
Studies
Technical efficiency
X-inefficiency
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Summary:An enormous number of empirical papers have estimated technical efficiency, the distance of firms inside a frontier, following the model of Farrell (Farrell, 1957. The measurement of productive efficiency. Journal of the Royal Statistical Society Series A 120 (3), 253–290). 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 also consider the relation between competition and efficiency.
ISSN:0167-7187
1873-7986
DOI:10.1016/S0167-7187(98)00033-2