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Productivity and credibility in industry equilibrium

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  • Michael Powell

Abstract

I analyze a model of production in a competitive environment with heterogeneous firms. Efficient production requires individuals within the organization to take noncontractible actions for which rewards must be informally promised rather than contractually assured. The credibility of such promises originates from a firm's future competitive rents. In equilibrium, heterogeneous firms are heterogeneously constrained, and competitive rents are inefficiently concentrated at the top. I explore several policy and empirical implications of this result.

Suggested Citation

  • Michael Powell, 2019. "Productivity and credibility in industry equilibrium," RAND Journal of Economics, RAND Corporation, vol. 50(1), pages 121-146, March.
    • Handle: RePEc:bla:randje:v:50:y:2019:i:1:p:121-146
    DOI: 10.1111/1756-2171.12264
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    Cited by:

    1. Cheng Chen, 2015. "Management Quality, Firm Organization and International Trade," 2015 Meeting Papers 53, Society for Economic Dynamics.
    2. Steven Callander & Dana Foarta & Takuo Sugaya, 2022. "Market Competition and Political Influence: An Integrated Approach," Econometrica, Econometric Society, vol. 90(6), pages 2723-2753, November.
    3. Martin C. Byford & Joshua S. Gans, 2014. "Permission to Exist," NBER Working Papers 20512, National Bureau of Economic Research, Inc.
    4. Bryan Hong & Lorenz Kueng & Mu-Jeung Yang, 2015. "Estimating Management Practice Complementarity between Decentralization and Performance Pay," NBER Working Papers 20845, National Bureau of Economic Research, Inc.
    5. Ufuk Akcigit & Harun Alp & Michael Peters, 2021. "Lack of Selection and Limits to Delegation: Firm Dynamics in Developing Countries," American Economic Review, American Economic Association, vol. 111(1), pages 231-275, January.
    6. Jan Grobovšek, 2020. "Managerial Delegation, Law Enforcement, and Aggregate Productivity," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 87(5), pages 2256-2289.
    7. Florian Englmaier & Matthias Fahn, 2015. "Size Matters - "Over"investments in a Relational Contracting Setting," CESifo Working Paper Series 5154, CESifo.
    8. Laura Boudreau & Julia Cajal-Grossi & Rocco Macchiavello, 2023. "Global Value Chains in Developing Countries: A Relational Perspective from Coffee and Garments," Journal of Economic Perspectives, American Economic Association, vol. 37(3), pages 59-86, Summer.
    9. Englmaier, Florian & Fahn, Matthias, 2014. "Size Matters - “Over†investments in a Relational Contracting Setting," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 506, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    10. Prat, Andrea & Dessein, Wouter, 2019. "Organizational Capital, Corporate Leadership, and Firm Dynamics," CEPR Discussion Papers 13513, C.E.P.R. Discussion Papers.
    11. Laura Boudreau, 2024. "Multinational Enforcement of Labor Law: Experimental Evidence on Strengthening Occupational Safety and Health Committees," Econometrica, Econometric Society, vol. 92(4), pages 1269-1308, July.

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