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Essay On Harvey Leibenstein

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INTRODUCTION A Jewish- American economist by the name of Harvey Leibenstein, was born in 1922 in Yanishpol, Ukraine. After attending Northwestern university, he joined Harvard where he made many written economic contributions namely: Economic Backwardness and Economic Growth (1957), and General X-efficiency theory and economic development (1978). His most renowned work is his book, “Beyond Economic Man” (1976). Leibenstein also derived a concept known as the X-efficiency theory. Leibenstein noticed that some firms in a specific industry are more efficient than others and there must be other intangible factors at work (Arndt, 1988:223). Neoclassical economists believed that under perfect competition, maximum efficiency needs to occur in order to make a profit, however X-efficiency explains …show more content…

He insisted that firms are not using their resources efficiently when there is an absence of strong competitive pressure (Perelman, 2011:211-22). After doing some research, Leibenstein noticed an ever recurring pattern where the factors of production were not being utilized to their full potential or they were being used in a wasteful way. These patterns did not coincide with the basic law of the neoclassical theory, as enterprises should be using their resources at optimum level and pursuing opportunities to achieve profit maximization. He also observed that the problems were not involved with markets directly but rather the activities inside the firms. The following conclusion was derived; if costs were not being minimized then one had to measure the variation between the actual and minimum costs and to do so, a name had to be found for this phenomenon, while secondly, the significance of this type of inefficiency had to be measured (Leibenstein, 1979:14). This is how the concept of X-efficiency was

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