Efficacy,effectiveness and efficiency in human resource use: A primer on the three e's

Disputes over resource use, particularly in the public sector, often stem from conflict over what is “efficient.” This paper systematizes and critiques the most frequently encountered efficiency notions, focusing on their their use and misuse in making human resource decisions. The conclusion is drawn that a triad comprising technical, cost, and allocative efficiency is the base upon which decisions ultimately must be founded if the aim is to obtain the most value from available resources. A corollary is that other conceptions mislead more often than clarify.

Technical efficiency requires getting the most from inputs; there must be no way to obtain greater output from those we are using. It underpins cost efficiency, which requires using the production technique that sacrifices least value from other outputs foregone. Allocative efficiency demands that resources cannot be redirected to produce outputs of higher value and in turn has both technical and cost efficiency as necessary preconditions.

Allocative efficiency is by far the most problematic. Few economists object to the Pareto principle, which states that resources are being misused if redeploying inputs or redistributing outputs can yield added benefits for some members of society without harming any others. However, it is rare to find real-world cases that simple and even when it can be applied, the approach risks biasing policy toward piecemeal methods when broader perspectives may be called for. The Kaldor-Hicks approach in part overcomes these limitations, but at a price. Since it sanctions what may be substantial income redistribution, willingness to accept its implications is much less certain.