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.
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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse15_2006.
Date of creation: Sep 2006
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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)
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