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Productivity and credibility in industry equilibrium
Author(s) -
Powell Michael
Publication year - 2019
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12264
Subject(s) - economic rent , credibility , productivity , industrial organization , production (economics) , economics , microeconomics , competitive equilibrium , general equilibrium theory , competition (biology) , business , macroeconomics , political science , law , ecology , biology
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.