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Competition Reduces X-Inefficiency - A Note on a Limited Liability Mechanism

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  • Stennek, J.

Abstract

The study illustrates that a financial restriction may serve as a disciplining device on the internal efficiency of a firm, and that the disciplining power is higher the tougher the product market competition is. The financial restriction is modeled as a limited liability constraint, that is a non-negative profit constraint. Hence, this limited liability mechanism may, in part, account for the disciplining power of product market competition on firm efficiency, alleged by policy makers as well as economists.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Stennek, J., 1995. "Competition Reduces X-Inefficiency - A Note on a Limited Liability Mechanism," Papers 599, Stockholm - International Economic Studies.
    • Handle: RePEc:fth:stocin:599
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    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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