Seminar Papers, Institute for International Economic Studies, Stockholm University
No 599:
Competition Reduces X-Inefficiency - A note on a Limited Liability Mechanism
Johan Stennek ()
Abstract: The study illustrates that a financial restriction may
serve as a disciplining device on the internal efficiency of a firm, and
that the disciplining power is higher the tougher the product market
competition is. The financial restriction is modeled as a limited liability
constraint, that is a non-negative profit constraint. Hence, this limited
liability mechanism may, in part, account for the disciplining power of
product market competition on firm efficiency, alleged by policy makers as
well as economists.
Keywords: financial restriction; efficiency of a firm; disciplining power; (follow links to similar papers)
JEL-Codes: D21; (follow links to similar papers)
29 pages, October 30, 1997
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