On the Impossibility of Efficiency in Production

30 Pages Posted: 10 Feb 2013

See all articles by Efthymios G. Tsionas

Efthymios G. Tsionas

Athens University of Economics and Business - Department of Economics

Date Written: February 10, 2013

Abstract

In this paper we consider the possibility that a firm may use costly resources to improve its technical efficiency. Results from static analyses imply that technical efficiency is determined by the configuration of factor prices. A dynamic model of the firm is developed under the assumption that managerial skill contributes to technical efficiency. Dynamic analysis shows that the firm can never be technically efficient if it maximizes profits, the steady state is always inefficient, and it is locally stable.

Keywords: optimal inefficiency, firm behavior, technical inefficiency

JEL Classification: C11

Suggested Citation

Tsionas, Efthymios (Efthymios) G., On the Impossibility of Efficiency in Production (February 10, 2013). Available at SSRN: https://ssrn.com/abstract=2214577 or http://dx.doi.org/10.2139/ssrn.2214577

Efthymios (Efthymios) G. Tsionas (Contact Author)

Athens University of Economics and Business - Department of Economics ( email )

76 Patission Street
GR-10434 Athens
Greece
+301 8203 (Phone)
+301 8203 301 (Fax)

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