AbstractIn a growth model, rent-grabbing and free riding can give rise to inequality in productivity and firm size. Inequality among firms affects a firm's incentive to free ride or to grab rents, and, hence, the incentive to invest in research and training We follow Lucas and Prescott (1971) and Hayashi (1982) and assume constant returns in production and in adjustment costs for investment, and perfect capital markets. Our conclusion, however, differs starkly from theirs: Average Tobin's q generally exceeds marginal q. That is, the unit value of capital is lower in big firms, and evidence dating back to Fazzari, Hubbard, and Petersen (1988) supports this claim quite decisively. Such evidence is usually taken to imply that small firms invest at a rate lower than its perfect capital market rate. In our model, however, it arises because small firms rely more on copying than big firms do: The marginal product of capital is equal across firms, but its average product is higher than that because small firms get a disproportionately high external benefit.
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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6841.
Date of creation: Dec 1998
Date of revision:
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Find related papers by JEL classification:
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
This paper has been announced in the following NEP Reports:
- NEP-ALL-1998-12-28 (All new papers)
- NEP-CDM-1998-12-28 (Collective Decision-Making)
- NEP-DGE-1998-12-28 (Dynamic General Equilibrium)
- NEP-PBE-1998-12-28 (Public Economics)
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.:
- Benabou, Roland, 1996. "Heterogeneity, Stratification, and Growth: Macroeconomic Implications of Community Structure and School Finance," American Economic Review, American Economic Association, vol. 86(3), pages 584-609, June.
- Jan Eeckhout, 2000.
"Competing Norms of Cooperation,"
Econometric Society World Congress 2000 Contributed Papers
0559, Econometric Society.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.