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Product Market Competition And Agency Costs

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  • JEN BAGGS
  • JEAN‐ETIENNE DE BETTIGNIES

Abstract

We model the effects of competition on managerial efficiency and isolate the agency effect of competition, present only in firms subject to agency costs, from the direct pressure effect of competition, which is present in all firms. Using a unique set of Canadian data that surveys both firms and their employees, we then evaluate the empirical significance of these two effects. We find that competition has a significant direct pressure effect as well as a significant agency effect. Both effects increase the importance firms place on quality improvements and cost reductions as well as on contractual incentives and employee effort.

Suggested Citation

  • Jen Baggs & Jean‐Etienne De Bettignies, 2007. "Product Market Competition And Agency Costs," Journal of Industrial Economics, Wiley Blackwell, vol. 55(2), pages 289-323, June.
  • Handle: RePEc:bla:jindec:v:55:y:2007:i:2:p:289-323
    DOI: 10.1111/j.1467-6451.2007.00312.x
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    References listed on IDEAS

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    1. Caves, Richard E, 1980. "Industrial Organization, Corporate Strategy and Structure," Journal of Economic Literature, American Economic Association, vol. 18(1), pages 64-92, March.
    2. Haskel, Jonathan, 1991. "Imperfect Competition, Work Practices and Productivity Growth," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 53(3), pages 265-279, August.
    3. Nickell, Stephen J, 1996. "Competition and Corporate Performance," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 724-746, August.
    4. Klaus M. Schmidt, 1997. "Managerial Incentives and Product Market Competition," Review of Economic Studies, Oxford University Press, vol. 64(2), pages 191-213.
    5. Rachel Griffith, 2001. "Product market competition, efficiency and agency costs: an empirical analysis," IFS Working Papers W01/12, Institute for Fiscal Studies.
    6. Michael Raith, 2003. "Competition, Risk, and Managerial Incentives," American Economic Review, American Economic Association, vol. 93(4), pages 1425-1436, September.
    7. Jean-Etienne de Bettignies, 2006. "Product market competition and boundaries of the firm," Canadian Journal of Economics, Canadian Economics Association, vol. 39(3), pages 948-970, August.
    8. Chad Syverson, 2004. "Market Structure and Productivity: A Concrete Example," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1181-1222, December.
    9. Vicente Cuñat & Maria Guadalupe, 2005. "How Does Product Market Competition Shape Incentive Contracts?," Journal of the European Economic Association, MIT Press, vol. 3(5), pages 1058-1082, September.
    10. Green, Alison & Mayes, David, 1991. "Technical Inefficiency in Manufacturing Industries," Economic Journal, Royal Economic Society, vol. 101(406), pages 523-538, May.
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