In defense of inefficiency

ECON Professor Peter Bogetoft’s newest paper shows how to distinguish useful and wasteful slack in organizations. It does so by exploiting one of the most fundamental ideas in economics, the Pareto idea. If an organization can maintain the same levels of output and slack at lower cost, there is wasteful or nonrationalizable spending. The paper develops ways to measure the share of total spending that can be rationalized and shows how to statistically estimate and test the usefulness of the available slack in an organization using bootstrapping. The paper is published in the top (AJG4*) Operations Research journal and is available under open access license here: https://pubsonline.informs.org/doi/epdf/10.1287/opre.2022.2415