Inefficiency

Inefficiency refers to a state in which resources are not used to their fullest potential, yielding less output than could be produced given the inputs and constraints. It can occur in many domains, from economics to engineering and public administration.

In economics, inefficiency describes outcomes that could improve welfare or reduce costs without harming others. Productive (technical) inefficiency occurs when production happens at a higher cost than the minimum possible for a given output. Allocative inefficiency arises when the mix of goods and services does not maximize social welfare, typically when marginal social benefits do not equal marginal costs. Some analyses also consider dynamic inefficiency, which involves slow adoption of better technologies or practices over time.

Common causes include market failures, information asymmetry, externalities, monopoly power, and policy distortions. Inadequate infrastructure, misaligned incentives, coordination problems, and capital or technology constraints can also generate inefficiency. Inefficiency may be temporary or persistent, depending on whether adaptive improvements are feasible and timely.

Measuring inefficiency often involves comparing actual performance to a benchmark. Efficiency is commonly defined as output divided by input; productive efficiency means achieving the output level at the least cost, while allocative efficiency requires resources to be allocated where their marginal benefits equal their marginal costs. Analytical tools such as data envelopment analysis (DEA) and frontier analysis are used to assess technical efficiency, while energy intensity and cost metrics gauge efficiency in specific domains.

Examples appear across sectors: manufacturing waste, energy-inefficient buildings, excessive or unnecessary medical testing, and bureaucratic or procedural delays. Remedial approaches include process optimization, lean management, technology upgrades, improved information flow, competition and market reforms, clearer pricing signals, and benchmarking against best practices.