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Competition, financial discipline and growth

Author

Listed:
  • Mathias Dewatripont
  • Philippe Aghion
  • Patrick Rey

Abstract

This paper develops a general equilibrium model of technological adoption in an economy populated by 'satisficing' entrepreneurs whose main objective is to minimise innovative effort while keeping the firm alive. In such an economy, product market competition is shown to have a stimulating effect on growth. Indeed, by reducing the amount of slack a manager can afford while keeping his firm alive, competition, combined with the threat of liquidation acts as a disciplinary device which fosters technology adoption and therefore growth. We then investigate how the existence of financial markets affects the importance of this growth-enhancing effect of competition.
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Suggested Citation

  • Mathias Dewatripont & Philippe Aghion & Patrick Rey, 1999. "Competition, financial discipline and growth," ULB Institutional Repository 2013/9619, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:ulb:ulbeco:2013/9619
    Note: SCOPUS: ar.j
    as

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    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • L0 - Industrial Organization - - General
    • O0 - Economic Development, Innovation, Technological Change, and Growth - - General

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