SFB 303 Discussion Paper No. A - 369
Author: Bös, Dieter, and Wolfgang Peters
Title: Double Inefficiency in Optimally Organized Firms
Abstract: This paper deals with a double inefficiency: (i) The workforce is
divided into several teams in which the employees choose their work effort
according to a non-cooperative Nash equilibrium. Hence the principal faces
inefficient team production in his firm. (ii) The principal is risk-averse
because revenue and consumer surplus are concave in output. This drives a
wedge between that choice of size and number of teams which is optimal and
that which is cost-minimal. The cost inefficiency drives a wedge between
expected price and marginal costs. - Conditions are given under which the
two inefficiencies either oppose or reinforce each other.
JEL-Classification-Number: D21, L23
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