Competition Reduces X-Inefficiency - A note on a Limited Liability Mechanism

Johan Stennek ()

No 599, Seminar Papers from Stockholm University, Institute for International Economic Studies

Abstract: The study illustrates that a financial restriction may serve as a disciplining device on the internal efficiency of a firm, and that the disciplining power is higher the tougher the product market competition is. The financial restriction is modeled as a limited liability constraint, that is a non-negative profit constraint. Hence, this limited liability mechanism may, in part, account for the disciplining power of product market competition on firm efficiency, alleged by policy makers as well as economists.

Keywords: financial restriction; efficiency of a firm; disciplining power (search for similar items in EconPapers)
JEL-codes: D21 (search for similar items in EconPapers)
Pages: 29 pages
Date: 1997-10-30
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Working Paper: Competition Reduces X-Inefficiency - A Note on a Limited Liability Mechanism (1995)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:iiessp:0599

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