Closing costs in ailing industries

Horst Siebert

No 201, Discussion Papers, Series I from University of Konstanz, Department of Economics

Abstract: The closing of firms causes social and human hardship and consequently has been subject to regulation, especially in Western Europe. Laws regulating closing are especially relevant in ailing industries. Closing restrictions establish procedures for market exit, reduce the demand for labor prior to closing when anticipated by the firm and reduce the marginal efficiency of capital. Moreover, they define an institutional characteristics of an economy with respect to flexibility. The political economy of closing suggests that part of closing costs in ailing industries are borne by the government in form of subsidies.

Date: 1985
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