On the "Adverse Selection" of Organizations

Matthias Kräkel

No 15/2006, Bonn Econ Discussion Papers from University of Bonn, Bonn Graduate School of Economics (BGSE)

Abstract: According to New Institutional Economics, two or more individuals will found an organization, if it leads to a benefit compared to market allocation. A natural consequence will then be internal rent seeking. We discuss the interrelation between profits, rent seeking and the foundation of organizations. Typically, we expect that highly profitable firms are always founded but it is not clear whether the same is true for firms with less optimistic prospects. We will show that internal rent seeking may lead to a completely reversed result. The impact of internal rent seeking on overall investment and the implications of firm size and competition on the foundation of organizations are also addressed.

Keywords: contests; foundation of organizations; internal rent seeking (search for similar items in EconPapers)
JEL-codes: D2 L2 M2 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: On the “Adverse Selection” of Organizations (2006)
Working Paper: On the "Adverse Selection" of Organizations (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bonedp:152006

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