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Competition Reduces X-Inefficiency - A note on a Limited Liability Mechanism

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  • Stennek, Johan

    (Institute for International Economic Studies, Stockholm University)

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.

Suggested Citation

  • Stennek, Johan, 1997. "Competition Reduces X-Inefficiency - A note on a Limited Liability Mechanism," Seminar Papers 599, Stockholm University, Institute for International Economic Studies.
    • Handle: RePEc:hhs:iiessp:0599
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    financial restriction; efficiency of a firm; disciplining power;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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