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Competition, Financial Discipline and Growth

  • Aghion, Philippe
  • Dewatripont, Mathias
  • Rey, Patrick

This paper develops a general equilibrium model of technological adoption in an economy populated by 'satisficing' entrepreneurs whose main objective is to minimise innovative effort while keeping the firm alive. In such an economy, product market competition is shown to have a stimulating effect on growth. Indeed, by reducing the amount of slack a manager can afford while keeping his firm alive, competition, combined with the threat of liquidation acts as a disciplinary device which fosters technology adoption and therefore growth. We then investigate how the existence of financial markets affects the importance of this growth-enhancing effect of competition.

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File URL: http://dash.harvard.edu/bitstream/handle/1/12490416/Competition,%20Financial%20Discipline,%20and%20Growth.pdf
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Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 12490416.

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Date of creation: 1999
Date of revision:
Publication status: Published in Rev Econ Studies
Handle: RePEc:hrv:faseco:12490416
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