Editing X-inefficiency (section)

== Measurements of X-inefficiency ==

'''Cost Efficiency Analysis''' -  To analyze the efficiency of firms or organizations in a particular industry or sector, a technique called cost frontier analysis is utilized. This involves approximating the minimum cost required to produce a specific level of output, which serves as the cost frontier. Companies that incur costs exceeding the frontier are deemed inefficient. Statistical methods are utilized in cost frontier analysis to estimate the frontier and gauge the extent of inefficiency within the firms.<ref>{{Cite journal |last1=Battese |first1=G. E. |last2=Coelli |first2=T. J. |date=1995-06-01 |title=A model for technical inefficiency effects in a stochastic frontier production function for panel data |journal=Empirical Economics |language=en |volume=20 |issue=2 |pages=325–332 |doi=10.1007/BF01205442 |s2cid=18411518 |issn=1435-8921|citeseerx=10.1.1.332.3049 }}</ref>  

'''[[Data envelopment analysis|Data Envelopment Analysis (DEA)]]''' - is a technique that does not rely on assumptions or preset parameters, and is used to assess the relative effectiveness of companies or groups. It evaluates how well firms use various inputs and outputs, and determines the highest level of efficiency attainable with the available resources. Ineffective firms are those that do not achieve this maximum level of efficiency.<ref>{{Cite book |last=Australia. Steering Committee for the Review of Commonwealth/State Service Provision |title=Data envelopment analysis: a technique for measuring the efficiency of government service delivery |date=1997 |publisher=Industry Commission |others=Australia. Industry Commission |isbn=0-646-33533-2 |location=Melbourne |oclc=38836394}}</ref>  

'''[[Stochastic frontier analysis]]''': - is a method that requires the estimation of a production function that focuses the unpredictable fluctuations in both inputs and outputs. The resulting result is then utilized to determined the efficiency of individual firms. When using this approach, any company that operates below the estimated level of efficiency is considered inefficient.<ref>{{Cite book |last=Kumbhakar |first=Subal |title=Stochastic frontier analysis |date=2000 |publisher=Cambridge University Press |others=C. A. Knox Lovell |isbn=0-521-48184-8 |location=Cambridge [England] |oclc=41315556}}</ref>