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Internal Market Failure: A Framework for Diagnosing Firm Inefficiency

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  • Aidan R. Vining

Abstract

ABSTRACT The theory of market and government failure can be used to diagnose inefficiency within firms and to identify strategies to deal with these problems. Internal market failures (IMFs) – internal public good problems, internal negative and positive externalities, internal information asymmetries, internal monopolies, the presence of uncertainty – create inefficiencies within firms just as they do in normal markets. As well, self‐interested behaviour by executives and internal interest groups (rent‐seeking) are analogous to government, or governance, failures (IGFs). Associated with many of these internal market failure problems are generic solutions that can usefully inform executives in their efforts to improve efficiency within the firm. Internal governance failures, in contrast, normally require action by shareholders and boards of directors.

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  • Aidan R. Vining, 2003. "Internal Market Failure: A Framework for Diagnosing Firm Inefficiency," Journal of Management Studies, Wiley Blackwell, vol. 40(2), pages 431-457, March.
    • Handle: RePEc:bla:jomstd:v:40:y:2003:i:2:p:431-457
    DOI: 10.1111/1467-6486.00346
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    3. Bruno S. Frey & Margit Osterloh, "undated". "Yes, Managers Should be Paid Like Bureaucrats," IEW - Working Papers 187, Institute for Empirical Research in Economics - University of Zurich.
    4. Nicolai Foss, 2006. "Knowledge and Organization in the Theory of the Multinational Corporation: Some Foundational Issues," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 10(1), pages 3-20, March.
    5. Steven Globerman & Aidan Vining, 2004. "The Outsourcing Decision: A Strategic Framework," International Trade 0404007, University Library of Munich, Germany.
    6. Philipp Wetzel & Erik Hofmann, 2020. "Toward a Multi-Sided Model of Service Quality for Logistics Service Providers," Administrative Sciences, MDPI, vol. 10(4), pages 1-24, October.
    7. Margit Osterloh & Bruno S. Frey, "undated". "Corporate Governance for Crooks? The Case for Corporate Virtue," IEW - Working Papers 164, Institute for Empirical Research in Economics - University of Zurich.
    8. Aidan R. Vining, 2016. "What Is Public Agency Strategic Analysis (PASA) and How Does It Differ from Public Policy Analysis and Firm Strategy Analysis?," Administrative Sciences, MDPI, vol. 6(4), pages 1-31, December.

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