Productive Efficiency

Productive efficiency, measured by the ratio between output and input, improves when the same input yields more, or better, output and is maximal when the output cannot be increased without increasing input. When the input is monetized and the output is not, the measurement can be called cost-effectiveness, cost utility, or cost efficacy. Productive efficiency is contrasted with allocative efficiency, which describes societywide allocation of resources and the resulting increase in general welfare.

Information about productive efficiency is often highly useful. Furthermore, its basic concepts add a useful clarity to many discussions; for instance, “cost cutting” is not synonymous with improved efficiency, since the result of cost cutting can be less or poorer output. On the other hand, productive efficiency is an inherently comparative and evaluative ...