Acceleration Incentives and X-Efficiency

  • William J. Baumol


Subsidies and taxes have long commended themselves as devices for the modification of incentives, both in the world of the designer of public policy and in the more abstract realm of economic analysis. The obvious arrangement for their use involves a payment, positive or negative, that varies directly with some measure of contribution. Thus, if social policy calls for the stimulation of exports, subsidy payments are proportioned to a firm’s export volume, etc. In this way it is hoped to strengthen the workings of the invisible hand as an instrument of social policy, making it more nearly true that ‘what is good for General Motors is good for the country’.


Profit Function Incentive Payment Perfect Competition Growth Incentive Average Cost Curve 


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  1. [1]
    Leibenstein, Harvey, ‘Allocative Efficiency vs. X-Efficiency’, American Economic Review, LIII (June 1966) 392–415.Google Scholar
  2. [2]
    Schumpeter, Joseph, The Theory of Economic Development (R. Opie, trans.), (Cambridge, Mass.: Harvard University Press, 1936).Google Scholar

Copyright information

© William J. Baumol 1974

Authors and Affiliations

  • William J. Baumol
    • 1
    • 2
  1. 1.Princeton UniversityUSA
  2. 2.New York UniversityUSA

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