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Shutdown Contests in Multi-Plant Firms and Governmental Intervention

Author

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  • Kräkel, Matthias

    (University of Bonn)

Abstract

When a multi-plant firm must close one unit due to declining demand it can choose between two alternatives. On the one hand, the firm can announce a certain span of time in which the plants are evaluated according to relative performance with the least performing plant being shut down in the end (shutdown contest). On the other hand, the firm can use given information on the plants' productivities and close the least productive unit. This paper analyzes the selection and incentive properties of both alternatives. Multi-plant firms often operate in an international industry. Hence, in a second step we discuss the effects of governmental support for domestic plants on selection efficiency.

Suggested Citation

  • Kräkel, Matthias, 2010. "Shutdown Contests in Multi-Plant Firms and Governmental Intervention," IZA Discussion Papers 4852, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp4852
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    References listed on IDEAS

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    Cited by:

    1. Rene Kirkegaard, 2024. "Financial Constraints and Multivariate Incomplete Information in the Mixture Model of Contests," Working Papers 2402, University of Guelph, Department of Economics and Finance.

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    More about this item

    Keywords

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    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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