THE ROLE OF COMPETITION FOR AN X-INEFFICIENTLY ORGANIZED FIRM

Authors
KAMECKE U
Citation
U. Kamecke, THE ROLE OF COMPETITION FOR AN X-INEFFICIENTLY ORGANIZED FIRM, International journal of industrial organization, 11(3), 1993, pp. 391-405
Citations number
15
Categorie Soggetti
Economics
Journal title
International journal of industrial organization → ACNP
ISSN journal
01677187
Volume
11
Issue
3
Year of publication
1993
Pages
391 - 405
Database
ISI
SICI code
0167-7187(1993)11:3<391:TROCFA>2.0.ZU;2-G
Abstract
This paper presents a manager controlled firm which does not minimize long-run costs even though the manager is the residual claimant maximi zing a profit depending salary. The inefficiency results because the e mployment contracts are not binding in the long run. The manager is af raid of being replaced by a rival. Therefore he invests too much to st rengthen his bargaining position in the contract renegotiation. The in efficiency is reduced by competition in the output market.