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Competition, Agency and Productivity

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  • Mark Rogers

    () (Harris Manchester College, Oxford and Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

Abstract

This paper tests a set of hypotheses relating to agency and Schumpeterian views on how competition affects performance. A survey data set of Australian workplaces is used, with the change in labour productivity growth as the dependent variable. The results show strong support for the idea that intense competition raises productivity growth in managerial workplaces, but not in non-managerial workplaces (i.e. where the principal owner also works). Testing the agency theories in more detail we find no evidence that the number of competitors, the price elasticity of demand or a proxy for bankruptcy (pre-tax losses) are the mechanisms behind the process. For non-managerial workplaces the results indicate support for the idea that greater demand uncertainty reduces productivity growth. In contrast, for managerial workplaces greater demand uncertainty tends to raise productivity growth.

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Bibliographic Info

Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2003n20.

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Length: 24 pages
Date of creation: Jul 2003
Date of revision:
Handle: RePEc:iae:iaewps:wp2003n20

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Postal: Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Victoria 3010 Australia
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Web page: http://www.melbourneinstitute.com/
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  1. Martin Stephen, 1993. "Endogenous Firm Efficiency in a Cournot Principal-Agent Model," Journal of Economic Theory, Elsevier, vol. 59(2), pages 445-450, April.
  2. David Scharfstein, 1988. "Product-Market Competition and Managerial Slack," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 147-155, Spring.
  3. Howitt, Peter & Griffith, Rachel & Aghion, Philippe & Blundell, Richard & Bloom, Nick, 2005. "Competition and Innovation: An Inverted-U Relationship," Scholarly Articles 4481507, Harvard University Department of Economics.
  4. Scherer, F M & Huh, Keun, 1992. "R&D Reactions to High-Technology Import Competition," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 202-12, May.
  5. Symeonidis, George, 2001. "Price Competition, Innovation and Profitability: Theory and UK Evidence," CEPR Discussion Papers 2816, C.E.P.R. Discussion Papers.
  6. Oliver D. Hart, 1983. "The Market Mechanism as an Incentive Scheme," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 366-382, Autumn.
  7. Nickell, S. & Nicolitasa, D. & Patterson, M., 1995. "Does Doing Badly Encourage Management Innovation?," Economics Series Working Papers 99175, University of Oxford, Department of Economics.
  8. Hagedoorn, John, 1996. "Innovation and Entrepreneurship: Schumpeter Revisited," Industrial and Corporate Change, Oxford University Press, vol. 5(3), pages 883-96.
  9. Charles R. Hulten, 2000. "Total Factor Productivity: A Short Biography," NBER Working Papers 7471, National Bureau of Economic Research, Inc.
  10. Schmidt, Klaus M., 1996. "Managerial Incentives and Product Market Competition," CEPR Discussion Papers 1382, C.E.P.R. Discussion Papers.
  11. Rachel Griffith, 2001. "Product market competition, efficiency and agency costs: an empirical analysis," IFS Working Papers W01/12, Institute for Fiscal Studies.
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  13. Geroski, P A, 1990. "Innovation, Technological Opportunity, and Market Structure," Oxford Economic Papers, Oxford University Press, vol. 42(3), pages 586-602, July.
  14. Meyer, Margaret A & Vickers, John, 1995. "Performance Comparisons and Dynamic Incentives," CEPR Discussion Papers 1107, C.E.P.R. Discussion Papers.
  15. Sanghoon Ahn, 2002. "Competition, Innovation and Productivity Growth: A Review of Theory and Evidence," OECD Economics Department Working Papers 317, OECD Publishing.
  16. Vickers, John, 1995. "Concepts of Competition," Oxford Economic Papers, Oxford University Press, vol. 47(1), pages 1-23, January.
  17. Aw, B. -Y. & Hwang, A. R., 1995. "Productivity and the export market: A firm-level analysis," Journal of Development Economics, Elsevier, vol. 47(2), pages 313-332, August.
  18. George Symeonidis, 1996. "Innovation, Firm Size and Market Structure: Schumpeterian Hypotheses and Some New Themes," OECD Economics Department Working Papers 161, OECD Publishing.
  19. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
  20. N Dryden & Stephen Nickell & D Nicolitsas, 1996. "What Makes Firms Perform Well?," CEP Discussion Papers dp0308, Centre for Economic Performance, LSE.
  21. Hagedoorn, John, 1996. "Innovation and entrepreneurship: Schumpeter revisited," Open Access publications from Maastricht University urn:nbn:nl:ui:27-4269, Maastricht University.
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Citations

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Cited by:
  1. Schoubben, Frederiek & Van Hulle, Cynthia, 2006. "The impact of a stock listing on the determinants of firm performance," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/121061, Katholieke Universiteit Leuven.
  2. Schoubben, Frederiek & Van Hulle, Cynthia, 2009. "The impact of capital market imperfections on the relationship between competition and corporate performance," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/222974, Katholieke Universiteit Leuven.
  3. Bulan, Laarni & Sanyal, Paroma & Yan, Zhipeng, 2010. "A few bad apples: An analysis of CEO performance pay and firm productivity," Journal of Economics and Business, Elsevier, vol. 62(4), pages 273-306, July.

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