Shutdown Contests in Multi-Plant Firms and Governmental Intervention

Matthias Kräkel

No 4852, IZA Discussion Papers from Institute of Labor Economics (IZA)

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.

Keywords: auction; collective tournament; plant closing; governmental intervention (search for similar items in EconPapers)
JEL-codes: D21 D61 F23 F51 J65 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2010-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Shutdown Contests in Multi-Plant Firms and Governmental Intervention (2010)
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