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Green with Envy: Implications for Corporate Investment Distortions

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Author Info
Anand M. Goel (DePaul University)
Anjan V. Thakor (Washington University, St. Louis)

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Abstract

We model agents whose preferences exhibit envy. An envious agent's utility increases with what he has and decreases with what others have. With this setup, we are able to provide a new perspective on the nature of investment distortions with centralized and decentralized capital budgeting systems. Centralized capital budgeting leads to corporate socialism in investments in multidivisional firms, whereas decentralized capital budgeting leads to overinvestment. Numerous additional testable predictions are also generated.

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File URL: http://www.journals.uchicago.edu/cgi-bin/resolve?JB780608
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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 78 (2005)
Issue (Month): 6 (November)
Pages: 2255-2288
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:ucp:jnlbus:v:78:y:2005:i:6:p:2255-2288

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  1. Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini, 2008. "Social Decision Theory: Choosing within and between Groups," Carlo Alberto Notebooks 71, Collegio Carlo Alberto. [Downloadable!]
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This page was last updated on 2009-12-2.

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