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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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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  19. Nitzan, Shmuel, 1994. "Modelling rent-seeking contests," European Journal of Political Economy, Elsevier, vol. 10(1), pages 41-60, May.
  20. Nalebuff, Barry J & Stiglitz, Joseph E, 1983. "Information, Competition, and Markets," American Economic Review, American Economic Association, vol. 73(2), pages 278-83, May.
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