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Reallocation costs, reference-dependent profit function and inefficiency

Author

Listed:
  • Bator Anne

    (University of Perpignan)

  • Walter Briec

    (University of Perpignan)

Abstract

The objective of this paper is to propose a theoretical framework where firms are maximizing profit taking into account a reallocation cost. This we do by introducing a reference-dependent profit function. It is shown in this paper that such a reference-dependent profit function is a useful concept to partly explain the existence of inefficiency for firms. Along this line it is shown that one can construct a suitable dynamical process quantifying the catching up of firms to reach the production frontier at each time period.

Suggested Citation

  • Bator Anne & Walter Briec, 2025. "Reallocation costs, reference-dependent profit function and inefficiency," Journal of Economics, Springer, vol. 144(2), pages 107-138, March.
    • Handle: RePEc:kap:jeczfn:v:144:y:2025:i:2:d:10.1007_s00712-024-00886-7
    DOI: 10.1007/s00712-024-00886-7
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    More about this item

    Keywords

    Reference dependent profit function; Inefficiency; Distance functions;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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