IDEAS home Printed from https://ideas.repec.org/p/zbw/bonedp/162006.html
   My bibliography  Save this paper

Firm Size, Economic Situation and Influence Activities

Author

Listed:
  • Kräkel, Matthias

Abstract

This paper discusses the optimal firm size in the presence of influence activities, and the level of individual rent-seeking dependent on the economic situation of the firm. Since size has a discouraging effect on the level of individual rent-seeking but also a quantity effect as the number of rent-seekers increases, the interplay of both effects determines whether the employer chooses an inefficiently small or large firm size. In the given setting, a bad economic situation leads to both a higher probability of a substantial loss and a reduction of productivity. The productivity effect and the two other effects together determine the optimal level of individual rent-seeking.

Suggested Citation

  • Kräkel, Matthias, 2006. "Firm Size, Economic Situation and Influence Activities," Bonn Econ Discussion Papers 16/2006, University of Bonn, Bonn Graduate School of Economics (BGSE).
    • Handle: RePEc:zbw:bonedp:162006
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/22961/1/bgse16_2006.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kai A. Konrad, 2000. "Sabotage in Rent-Seeking Contests," Springer Books, in: Roger D. Congleton & Arye L. Hillman & Kai A. Konrad (ed.), 40 Years of Research on Rent Seeking 1, pages 409-419, Springer.
    2. Gibbons, Robert, 2005. "Four forma(lizable) theories of the firm?," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 200-245, October.
    3. Stergios Skaperdas, 1996. "Contest success functions (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(2), pages 283-290.
    4. Roman Inderst & Holger Müller & Karl Wärneryd, 2005. "Influence costs and hierarchy," Economics of Governance, Springer, vol. 6(2), pages 177-197, July.
    5. Bagwell, Laurie Simon & Zechner, Josef, 1993. "Influence Costs and Capital Structure," Journal of Finance, American Finance Association, vol. 48(3), pages 975-1008, July.
    6. Baron, David P. & Besanko, David, 1984. "Regulation and information in a continuing relationship," Information Economics and Policy, Elsevier, vol. 1(3), pages 267-302.
    7. Muller, Holger M & Warneryd, Karl, 2001. "Inside versus Outside Ownership: A Political Theory of the Firm," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 527-541, Autumn.
    8. Kräkel, Matthias, 2006. "On the "Adverse Selection" of Organizations," Bonn Econ Discussion Papers 15/2006, University of Bonn, Bonn Graduate School of Economics (BGSE).
    9. Bengt Holmstrom & John Roberts, 1998. "The Boundaries of the Firm Revisited," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 73-94, Fall.
    10. Meyer, Margaret & Milgrom, Paul & Roberts, John, 1992. "Organizational Prospects, Influence Costs, and Ownership Changes," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(1), pages 9-35, Spring.
    11. David S. Scharfstein & Jeremy C. Stein, 2000. "The Dark Side of Internal Capital Markets: Divisional Rent‐Seeking and Inefficient Investment," Journal of Finance, American Finance Association, vol. 55(6), pages 2537-2564, December.
    12. Bengt Holmstrom, 1999. "Managerial Incentive Problems: A Dynamic Perspective," NBER Working Papers 6875, National Bureau of Economic Research, Inc.
    13. Inderst, Roman & Muller, Holger M. & Warneryd, Karl, 2007. "Distributional conflict in organizations," European Economic Review, Elsevier, vol. 51(2), pages 385-402, February.
    14. Kai A. Konrad, 2004. "Bidding in hierarchies," Springer Books, in: Roger D. Congleton & Arye L. Hillman & Kai A. Konrad (ed.), 40 Years of Research on Rent Seeking 1, pages 547-554, Springer.
    15. Ewerhart, Christian & Schmitz, Patrick W., 2000. ""Yes men", integrity, and the optimal design of incentive contracts," Journal of Economic Behavior & Organization, Elsevier, vol. 43(1), pages 115-125, September.
    16. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-580, June.
    17. Scott Schaefer, 1998. "Influence Costs, Structural Inertia, and Organizational Change," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(2), pages 237-263, June.
    18. Fairburn, James A. & Malcomson, James M., 1994. "Rewarding performance by promotion to a different job," European Economic Review, Elsevier, vol. 38(3-4), pages 683-690, April.
    19. Prendergast, Canice, 1993. "A Theory of "Yes Men."," American Economic Review, American Economic Association, vol. 83(4), pages 757-770, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kräkel, Matthias, 2006. "On the "Adverse Selection" of Organizations," Bonn Econ Discussion Papers 15/2006, University of Bonn, Bonn Graduate School of Economics (BGSE).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Oliver Gürtler, 2010. "Haggling for Rents, Relational Contracts, and the Theory of the Firm," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 62(4), pages 359-377, October.
    2. Kräkel, Matthias, 2006. "On the "Adverse Selection" of Organizations," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 168, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    3. Beckmann, Michael & Kräkel, Matthias, 2012. "Internal rent seeking, works councils, and optimal establishment size," European Economic Review, Elsevier, vol. 56(4), pages 711-726.
    4. Inderst, Roman & Muller, Holger M. & Warneryd, Karl, 2007. "Distributional conflict in organizations," European Economic Review, Elsevier, vol. 51(2), pages 385-402, February.
    5. Johannes Münster, 2009. "Group contest success functions," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 41(2), pages 345-357, November.
    6. Wärneryd, Karl, 2014. "Rent Seeking and Organizational Structure," SSE/EFI Working Paper Series in Economics and Finance 749, Stockholm School of Economics.
    7. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    8. repec:elg:eechap:15325_7 is not listed on IDEAS
    9. Wulf, Julie, 2009. "Influence and inefficiency in the internal capital market," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 305-321, October.
    10. Chongwoo Choe & In-Uck Park, 2012. "Information Transmission through Influence Activities," Monash Economics Working Papers 53-12, Monash University, Department of Economics.
    11. Stein, Jeremy C., 2003. "Agency, information and corporate investment," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 2, pages 111-165, Elsevier.
    12. Michael Powell, 2015. "An Influence-Cost Model of Organizational Practices and Firm Boundaries," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 31(suppl_1), pages 104-142.
    13. Brice Corgnet & Ludivine Martin & Peguy Ndodjang & Angela Sutan, 2015. "On the Merit of Equal Pay: When Influence Activities Interact with Incentive Setting," Working Papers 15-09, Chapman University, Economic Science Institute.
    14. DeVaro, Jed, 2011. "Using "opposing responses" and relative performance to distinguish empirically among alternative models of promotions," MPRA Paper 35175, University Library of Munich, Germany.
    15. Bhattacharya, Puja & Rampal, Jeevant, 2019. "Contests within and between groups," Discussion Papers, Research Unit: Market Behavior SP II 2019-206, WZB Berlin Social Science Center.
    16. Bhattacharya, Puja & Rampal, Jeevant, 2024. "Contests within and between groups: Theory and experiment," Games and Economic Behavior, Elsevier, vol. 145(C), pages 467-492.
    17. Münster, Johannes, 2004. "Simultaneous inter- and intra-group conflicts," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 4, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    18. Stergios Skaperdas & Samarth Vaidya, 2012. "Persuasion as a contest," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 51(2), pages 465-486, October.
    19. Gürtler, Oliver, 2006. "Contractual Incentive Provision and Commitment in Rent-Seeking Contests," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 100, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    20. George J. Mailath & Volker Nocke & Andrew Postlewaite, 2004. "Business Strategy, Human Capital, and Managerial Incentives," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(4), pages 617-633, December.
    21. Konrad, Kai A., 2007. "Strategy in contests: an introduction [Strategie in Turnieren – eine Einführung]," Discussion Papers, Research Unit: Market Processes and Governance SP II 2007-01, WZB Berlin Social Science Center.
    22. Johannes Münster & Klaas Staal, 2012. "How organizational structure can reduce rent-seeking," Public Choice, Springer, vol. 150(3), pages 579-594, March.

    More about this item

    Keywords

    economic situation; firm size; influence activities; politicking; rent-seeking;
    All these keywords.

    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • D2 - Microeconomics - - Production and Organizations
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:bonedp:162006. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/gsbonde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.