Competition Reduces X-Inefficiency: A Note on a Limited Liability Mechanism

M.J. Stennek

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    Abstract

    The study illustrates that a financial restriction may serve as a disciplining device on the internal efficiency of a firm, and that the disciplining power is higher the tougher the product market competition is. The financial restriction is modeled as a limited liability constraint, that is a non-negative profit constraint. Hence, this limited liability mechanism may, in part, account for the disciplining power of product market competition on firm efficiency, alleged by policy makers as well as economists.
    Original languageEnglish
    PublisherCentER
    Volume1995-56
    Publication statusPublished - 1995

    Publication series

    NameCentER Discussion Paper
    Volume1995-56

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  • Cite this

    Stennek, M. J. (1995). Competition Reduces X-Inefficiency: A Note on a Limited Liability Mechanism. (CentER Discussion Paper; Vol. 1995-56). CentER.