SFB 303 Discussion Paper No. A - 265

Author: Kamecke, Ulrich
Title: The Role of Competition for an X-Inefficient Organization
Abstract: The paper presents a manager controled firm which does not minimize long run costs even though there is no moral hazard problem involved and the mangager maximizes a profit depending salary. The inefficiency is caused by competition in the job market since the manager uses some of his freedom inside the firm to protect himself against rivals when he decides on matters that affect the firm's profitability in the time after his salary is renegotiated. The inefficiency is limited by competition in the output market.
Creation-Date: December 1989
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