Green with Envy: Implications for Corporate Investment Distortions

Anand Goel () and Anjan Thakor ()

The Journal of Business, 2005, vol. 78, issue 6, 2255-2288

Abstract: We model agents whose preferences exhibit envy. An envious agent's utility increases with what he has and decreases with what others have. With this setup, we are able to provide a new perspective on the nature of investment distortions with centralized and decentralized capital budgeting systems. Centralized capital budgeting leads to corporate socialism in investments in multidivisional firms, whereas decentralized capital budgeting leads to overinvestment. Numerous additional testable predictions are also generated.

Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:ucp:jnlbus:v:78:y:2005:i:6:p:2255-2288

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