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Shutdown Contests in Multi-Plant Firms and Governmental Intervention

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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, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp4852
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    References listed on IDEAS

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    1. Wintrobe, Ronald & Breton, Albert, 1986. "Organizational Structure and Productivity," American Economic Review, American Economic Association, vol. 76(3), pages 530-538, June.
    2. Mary E. Deily, 1991. "Exit Strategies and Plant-Closing Decisions: The Case of Steel," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 250-263, Summer.
    3. Konrad, Kai A., 2000. "Trade contests," Journal of International Economics, Elsevier, vol. 51(2), pages 317-334, August.
    4. Brainard, S. Lael & Martimort, David, 1997. "Strategic trade policy with incompletely informed policymakers," Journal of International Economics, Elsevier, vol. 42(1-2), pages 33-65, February.
    5. Reynolds, Stanley S, 1988. "Plant Closings and Exit Behaviour in Declining Industries," Economica, London School of Economics and Political Science, vol. 55(220), pages 493-503, November.
    6. H. D. Watts & J. D. Kirkham, 1999. "Plant Closures by Multi-locational Firms: A Comparative Perspective," Regional Studies, Taylor & Francis Journals, vol. 33(5), pages 413-424.
    7. Anthony M. Marino & Ján Zábojník, 2004. "Internal Competition for Corporate Resources and Incentives in Teams," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 710-727, Winter.
    8. Brander, James A., 1995. "Strategic trade policy," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 27, pages 1395-1455 Elsevier.
    9. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
    10. Brainard, S Lael, 1994. "Last One Out Wins: Trade Policy in an International Exit Game," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(1), pages 151-172, February.
    11. Cassing, James H & Hillman, Arye L, 1986. "Shifting Comparative Advantage and Senescent Industry Collapse," American Economic Review, American Economic Association, vol. 76(3), pages 516-523, June.
    12. Dragon, Robert & Garvey, Gerald T. & Turnbull, Geoffrey K., 1996. "A collective tournament," Economics Letters, Elsevier, vol. 50(2), pages 223-227, February.
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    More about this item

    Keywords

    auction; collective tournament; plant closing; governmental intervention;

    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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