Efficiency theory is a broad term that appears in several fields including economics, organizational management, and engineering, but generally refers to theories that explain how to maximize output while minimizing input and waste. In economics, efficiency theory includes concepts like productive efficiency where goods are produced at lowest cost, allocative efficiency where resources are distributed to maximize total welfare, Pareto efficiency where no one can be made better off without making someone worse off, and market efficiency theory like the Efficient Market Hypothesis which states that asset prices reflect all available information. In industrial engineering, efficiency theory originates from Frederick Taylor's scientific management and Frank and Lillian Gilbreth's time and motion studies, which analyze workflows to eliminate wasted movements and optimize labor productivity. In organizational theory, efficiency theory examines how structure, incentives, and processes affect organizational performance. In energy and environmental economics, efficiency theory studies how to achieve same services with less energy through technology and behavior. Common principles across efficiency theories include measurement of inputs and outputs, identification of bottlenecks and waste, optimization, tradeoffs between efficiency and equity or resilience, and continuous improvement.
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