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Productivity and Credibility in Industry Equilibrium

Abstract

I analyze a model of production in a competitive environment with heterogeneous firms. Efficient production requires individuals within the organization to take non-contractible actions for which rewards must be informally promised rather than contractually assured. The credibility of such promises emerges from a firm's future competitive rents. Equilibrium competitive rents are inefficient concentrated at the top. I explore several policy and empirical implications of this result.

Type

Working Paper

Author(s)

Michael Powell

Date Published

2017

Citations

Powell, Michael. 2017. Productivity and Credibility in Industry Equilibrium.

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