By Harvey Leibenstein
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Additional info for General X-Efficiency Theory and Economic Development (Economic Development Series)
Suppose that to produce a certain commodity, a certain type of machine has to be employed. If no one in the country produces such a machine and if imports are barred, only entrepreneurs who have access to information on how to construct the machine can enter the industry. The potential entrepreneur has to make up for a market deficiency. But that is not his only major function. We have already suggested that if entrepreneurship is to be analyzed from an interesting viewpoint, we must change market assumptions.
Once the effort level is a discretionary variable then this distinction becomes significant since the motivations of principals are likely to be quite different than the motivations of agents, and, as a consequence, their effort levels, in the same contexts, will also differ. This brief discussion of some of the main differences behind the basic assumptions of X-inemciency theory as against the neoclassical model is intended only to indicate the basic structural differences between the two types of theories so that they may be kept in mind as we fill in the details of the general X-efficiency theory.
We have already suggested that if entrepreneurship is to be analyzed from an interesting viewpoint, we must change market assumptions. We must first visualize markets which are imperfect in a great many respects. Two types of imperfections are (1) obstacles to the marshaling of inputs and (2) gaps and holes in various input or output markets. Obstacles may exist in a variety of ways. Some inputs may be available but are currently used for other purposes. It requires an active imagination to realize that something used for one purpose has superior or equally good alternative uses.