Dynamic efficiency is a term in economics

Economics

Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

, which refers to an economy that appropriately balances short run concerns (static efficiency) with concerns in the long run (focusing on encouraging research and development). Through dynamic efficiency, such an economy is able to further improve efficiency over time. Investments in education

Education

Education in its broadest, general sense is the means through which the aims and habits of a group of people lives on from one generation to the next. Generally, it occurs through any experience that has a formative effect on the way one thinks, feels, or acts...

, research and innovation

Innovation

Innovation is the creation of better or more effective products, processes, technologies, or ideas that are accepted by markets, governments, and society...

 are important in this process.

Dynamic efficiency also refers to the ability to adapt quickly and at low cost to changed economic conditions and thereby maintain output and productivity

Productivity

Productivity is a measure of the efficiency of production. Productivity is a ratio of what is produced to what is required to produce it. Usually this ratio is in the form of an average, expressing the total output divided by the total input...

 performance despite economic 'shocks'. Dynamic efficiency is pursued through microeconomic reform

Microeconomic reform

The term microeconomic reform refers to policies directed to achieve improvements in economic efficiency, either by eliminating or reducing distortions in individual sectors of the economy or by reforming economy-wide policies such as tax policy and competition policy with an emphasis on economic...

 and increased competition

Competition

Competition is a contest between individuals, groups, animals, etc. for territory, a niche, or a location of resources. It arises whenever two and only two strive for a goal which cannot be shared. Competition occurs naturally between living organisms which co-exist in the same environment. For...

, which provide incentives for businesses to innovate and adapt.

dynamic efficiency in growth model

The Solow model and the Ramsey-Cass-Koopmans model do not have dynamic efficiency problems, but the Diamond Growth model is dynamically inefficient because of the overlapping generation setup; there is an allocation point which is better than the competitive equilibrium allocation point.

See also

• Creative destruction
  Creative destruction
  Creative destruction is a term originally derived from Marxist economic theory which refers to the linked processes of the accumulation and annihilation of wealth under capitalism. These processes were first described in The Communist Manifesto and were expanded in Marx's Grundrisse and "Volume...
  
   and Joseph Schumpeter
  Joseph Schumpeter
  Joseph Alois Schumpeter was an Austrian-Hungarian-American economist and political scientist. He popularized the term "creative destruction" in economics.-Life:...
  
  
• Productive efficiency
  Productive efficiency
  Productive efficiency occurs when the economy is utilizing all of its resources efficiently, producing most output from least input. The concept is illustrated on a production possibility frontier where all points on the curve are points of maximum productive efficiency...
  
   and Pareto efficiency
  Pareto efficiency
  Pareto efficiency, or Pareto optimality, is a concept in economics with applications in engineering and social sciences. The term is named after Vilfredo Pareto, an Italian economist who used the concept in his studies of economic efficiency and income distribution.Given an initial allocation of...
  
   and Kaldor-Hicks efficiency
  Kaldor-Hicks efficiency
  Kaldor–Hicks efficiency, named for Nicholas Kaldor and John Hicks, also known as Kaldor–Hicks criterion, is a measure of economic efficiency that captures some of the intuitive appeal of Pareto efficiency, but has less stringent criteria and is hence applicable to more circumstances...
  
  
• Allocative efficiency
  Allocative efficiency
  Allocative efficiency is a theoretical measure of the benefit or utility derived from a proposed or actual selection in the allocation or allotment of resources....
  
  
• X-efficiency
• Prices, profit (economics)
  Profit (economics)
  In economics, the term profit has two related but distinct meanings. Normal profit represents the total opportunity costs of a venture to an entrepreneur or investor, whilst economic profit In economics, the term profit has two related but distinct meanings. Normal profit represents the total...
  
   and property rights
• Economic efficiency
• Hotelling's rule
  Hotelling's rule
  Hotelling's rule states that the most socially and economically profitable extraction path of a non-renewable resource is one along which the price of the resource, determined by the marginal net revenue from the sale of the resource, increases at the rate of interest...