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Firm competition and incentive pay: Rent seeking at work

  • Priks, Mikael

Empirical evidence shows that competition among firms generates steep incentives inside firms. Incentive pay stimulates productive investments but may generate inefficient rent-seeking investments. I show that competition reduces firms’ profits and thereby the inefficient investments, which makes steep incentives attractive.

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File URL: http://www.sciencedirect.com/science/article/pii/S016517651100245X
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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 113 (2011)
Issue (Month): 2 ()
Pages: 154-156

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Handle: RePEc:eee:ecolet:v:113:y:2011:i:2:p:154-156
DOI: 10.1016/j.econlet.2011.06.006
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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  18. Michael Raith, 2003. "Competition, Risk, and Managerial Incentives," American Economic Review, American Economic Association, vol. 93(4), pages 1425-1436, September.
  19. Kaoru Ueda, 2002. "Oligopolization in collective rent-seeking," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 19(3), pages 613-626.
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