Monopoly, X-Efficiency and the Measurement of Welfare Loss

and Rowley [3]. We wish to suggest that the arguments of these two papers have to be seriously qualified (Section I), and to present an alternative analysis of this problem. The principal difference between our approach and that of Comanor and Leibenstein is that we, following Corden [2], take account of the gain to the monopolist of being "inefficient".3 It will be seen that our proposed measure of welfare loss is different from both the traditional measure and the Comanor-Leibenstein measure (Section II). We also examine the welfare implication of a type of managerial inefficiency not considered by Comanor and Leibenstein, viz. the selection of the "wrong" level of output (Section III). Some qualifications to our analysis are also mentioned (Section IV), and a general conclusion regarding the welfare effects of X-inefficiency is stated (Section V).