Maximizing Behavior: Reconciling Neoclassical and X-Efficiency Approaches
Perhaps the simplest definition of maximizing behavior (MB) is "doing one's best." Yet precisely what is meant by doing one's best needs to be interpreted. Neoclassical (NC) economics clearly views the constrained optimization process as the only way to define maximizing behavior: an objective function, whose value is to be maximized, is specified containing the relevant variables, and a set of constraints is established to embody the various kinds of restrictions within which the maximizing process must be fulfilled. The outcome-the solutions to the set of equations so defined-is supposed to establish clearly and precisely those conditions that yield the largest values for the objectives of interest, while at the same time obeying the restrictions embodied in the constraints. The underlying presumption is that firms in all ways and at all times intend to do their best, where best is defined as achieving all possible states where benefits exceed or are equal to costs-in other words, all opportunities for net gain are exhausted. Firms would never knowingly fail to un.dertake activities where net gains are achievable; forgone products would never be obtainable at less than their cost. Such motivation is deemed unchangeable; variations in outcomes can occur over time, but they will always reflect changing circumstances and never any wavering in the firm's determination and intention to do its all-costs-considered best. X-efficiency defines doing one's best differently as whether a firm in