Competition, financial discipline and growth
AbstractThis paper develops a general equilibrium model of technological adoption in an economy populated by 'satisficing' entrepreneurs whose main objective is to minimise innovative effort while keeping the firm alive. In such an economy, product market competition is shown to have a stimulating effect on growth. Indeed, by reducing the amount of slack a manager can afford while keeping his firm alive, competition, combined with the threat of liquidation acts as a disciplinary device which fosters technology adoption and therefore growth. We then investigate how the existence of financial markets affects the importance of this growth-enhancing effect of competition.
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Bibliographic InfoPaper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/9619.
Date of creation: Oct 1999
Date of revision:
Publication status: Published in: The Review of Economic Studies (1999) v.66 n° 4
Other versions of this item:
- Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1999. "Competition, Financial Discipline and Growth," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2128, C.E.P.R. Discussion Papers.
- E0 - Macroeconomics and Monetary Economics - - General
- L0 - Industrial Organization - - General
- O0 - Economic Development, Technological Change, and Growth - - General
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