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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.

Suggested Citation

  • Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1999. "Competition, Financial Discipline and Growth," Scholarly Articles 12490416, Harvard University Department of Economics.
  • Handle: RePEc:hrv:faseco:12490416

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    References listed on IDEAS

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    3. repec:ucp:bknber:9780226304557 is not listed on IDEAS
    4. DiNardo, John & Fortin, Nicole M & Lemieux, Thomas, 1996. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Econometrica, Econometric Society, vol. 64(5), pages 1001-1044, September.
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    6. Daron Acemoglu, 1999. "Changes in Unemployment and Wage Inequality: An Alternative Theory and Some Evidence," American Economic Review, American Economic Association, vol. 89(5), pages 1259-1278, December.
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      • Greenwood, J. & Yorukoglu, M., 1996. "1974," RCER Working Papers 429, University of Rochester - Center for Economic Research (RCER).
    8. Helpman, Elhanan & Rangel, Antonio, 1999. "Adjusting to a New Technology: Experience and Training," Journal of Economic Growth, Springer, vol. 4(4), pages 359-383, December.
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    12. repec:dau:papers:123456789/10093 is not listed on IDEAS
    13. Per Krusell & Lee E. Ohanian & JosÈ-Victor RÌos-Rull & Giovanni L. Violante, 2000. "Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis," Econometrica, Econometric Society, vol. 68(5), pages 1029-1054, September.
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    More about this item

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • L0 - Industrial Organization - - General
    • O0 - Economic Development, Innovation, Technological Change, and Growth - - General


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