On the “Adverse Selection” of Organizations
AbstractAccording to New Institutional Economics, two or more individuals will found an organization, if it leads to a benefit compared to market allocation. A natural consequence will then be internal rent seeking. We discuss the interrelation between profits, rent seeking and the foundation of organizations. Typically, we expect that highly profitable firms are always founded but it is not clear whether the same is true for firms with less optimistic prospects. We will show that internal rent seeking may lead to a completely reversed result. The impact of internal rent seeking on overall investment and the implications of firm size and competition on the foundation of organizations are also addressed.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse15_2006.
Date of creation: Sep 2006
Date of revision:
Contact details of provider:
Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
Fax: +49 228 73 6884
Web page: http://www.bgse.uni-bonn.de/index.php?id=494
contests; foundation of organizations; internal rent seeking;
Other versions of this item:
- Kräkel, Matthias, 2006. "On the “Adverse Selection” of Organizations," IZA Discussion Papers 2396, Institute for the Study of Labor (IZA).
- Kräkel, Matthias, 2006. "On the "Adverse Selection" of Organizations," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 168, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- D2 - Microeconomics - - Production and Organizations
- L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
- M2 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-09-30 (All new papers)
- NEP-BEC-2006-09-30 (Business Economics)
- NEP-MIC-2006-09-30 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Inderst, Roman & Müller, Holger M. & Wärneryd, Karl, 2000.
"Influence Costs and Hierarchy,"
Sonderforschungsbereich 504 Publications
00-30, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
- Ellingsen, Tore, 1997.
" Efficiency Wages and X-Inefficiencies,"
Scandinavian Journal of Economics,
Wiley Blackwell, vol. 99(4), pages 581-96, December.
- Kai A. Konrad, 2002.
"Investment in the Absence of Property Rights: The Role of Incumbency Advantages,"
CESifo Working Paper Series
698, CESifo Group Munich.
- Konrad, Kai A., 2002. "Investment in the absence of property rights; the role of incumbency advantages," European Economic Review, Elsevier, vol. 46(8), pages 1521-1537, September.
- Konrad, Kai A., 2001. "Investment in the absence of property rights: the role of incumbency advantages," Discussion Papers, Research Unit: Market Processes and Governance FS IV 01-18, Social Science Research Center Berlin (WZB).
- Konrad, Kai A, 2001. "Investment in the Absence of Property Rights: The Role of Incumbency Advantages," CEPR Discussion Papers 3050, C.E.P.R. Discussion Papers.
- Gibbons, Robert, 2005. "Four forma(lizable) theories of the firm?," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 200-245, October.
- Konrad, Kai A., 2004.
"Bidding in hierarchies,"
European Economic Review,
Elsevier, vol. 48(6), pages 1301-1308, December.
- Konrad, Kai A., 2003. "Bidding in hierarchies," Discussion Papers, Research Unit: Market Processes and Governance SP II 2003-27, Social Science Research Center Berlin (WZB).
- Skaperdas, Stergios, 1996.
"Contest Success Functions,"
Springer, vol. 7(2), pages 283-90, February.
- Inderst, Roman & Mueller, Holger M & Wärneryd, Karl, 2002.
"Distributional Conflict in Organisations,"
CEPR Discussion Papers
3315, C.E.P.R. Discussion Papers.
- Muller, Holger M & Warneryd, Karl, 2001. "Inside versus Outside Ownership: A Political Theory of the Firm," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 527-41, Autumn.
- Dixit, Avinash K, 1987. "Strategic Behavior in Contests," American Economic Review, American Economic Association, vol. 77(5), pages 891-98, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (BGSE Office).
If references are entirely missing, you can add them using this form.