EconPapers    
Economics at your fingertips  
 

Organization and Information: Firms' Governance Choices in Rational-Expectations Equilibrium

Robert Gibbons, Richard Holden () and Michael Powell

The Quarterly Journal of Economics, 2012, vol. 127, issue 4, 1813-1841

Abstract: We analyze a rational-expectations model of price formation in an intermediate-good market under uncertainty. There is a continuum of firms, each consisting of a party who can reduce production cost and a party who can discover information about demand. Both parties can make specific investments at private cost, and there is a machine that either party can control. As in incomplete-contracting models, different governance structures (i.e., different allocations of control of the machine) create different incentives for the parties' investments. As in rational-expectations models, some parties may invest in acquiring information, which is then incorporated into the market-clearing price of the intermediate good by these parties' production decisions. The informativeness of the price mechanism affects the returns to specific investments and hence the optimal governance structure for individual firms; meanwhile, the governance choices by individual firms affect the informativeness of the price mechanism. In equilibrium, the informativeness of the price mechanism can induce ex ante homogeneous firms to choose heterogeneous governance structures. Copyright 2012, Oxford University Press.

Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (12) Track citations by RSS feed

Downloads: (external link)
http://hdl.handle.net/10.1093/qje/qjs033 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:qjecon:v:127:y:2012:i:4:p:1813-1841

Access Statistics for this article

The Quarterly Journal of Economics is currently edited by Robert J. Barro, Elhanan Helpman, Lawrence F. Katz and Andrei Schleifer

More articles in The Quarterly Journal of Economics from Oxford University Press
Bibliographic data for series maintained by Oxford University Press ().

 
Page updated 2020-08-07
Handle: RePEc:oup:qjecon:v:127:y:2012:i:4:p:1813-1841