Competition Reduces X-Inefficiency - A note on a Limited Liability Mechanism
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.
|Date of creation:||30 Oct 1997|
|Date of revision:|
|Contact details of provider:|| Postal: Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden|
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