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Internal Market Failure: A Framework for Diagnosing Firm Inefficiency

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  • Aidan R. Vining

Abstract

The theory of market and government failure can be used to diagnose inefficiency within firms and to identify strategies to deal with these problems. Internal market failures (IMFs) - internal public good problems, internal negative and positive externalities, internal information asymmetries, internal monopolies, the presence of uncertainty - create inefficiencies within firms just as they do in normal markets. As well, self-interested behaviour by executives and internal interest groups (rent-seeking) are analogous to government, or governance, failures (IGFs). Associated with many of these internal market failure problems are generic solutions that can usefully inform executives in their efforts to improve efficiency within the firm. Internal governance failures, in contrast, normally require action by shareholders and boards of directors. Copyright 2003 Blackwell Publishing Ltd..

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Management Studies.

Volume (Year): 40 (2003)
Issue (Month): 2 (03)
Pages: 431-457

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Handle: RePEc:bla:jomstd:v:40:y:2003:i:2:p:431-457

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2380

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Cited by:
  1. Bruno S. Frey & Margit Osterloh, 2004. "Yes, Managers Should Be Paid Like Bureaucrats," CREMA Working Paper Series 2005-03, Center for Research in Economics, Management and the Arts (CREMA).
  2. George, Rejie & Kabir, Rezaul, 2008. "Business groups and profit redistribution: A boon or bane for firms?," Journal of Business Research, Elsevier, vol. 61(9), pages 1004-1014, September.
  3. Steven Globerman & Aidan Vining, 2004. "The Outsourcing Decision: A Strategic Framework," International Trade 0404007, EconWPA.

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