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Title:On the Adverse Selection of Organizations PDF Logo
Authors:Kräkel, Matthias
Issue Date:2006
Series/Report no.:Bonn econ discussion papers 2006,15
Abstract:According to New Institutional Economics, two or more individuals will found an organization, if it leads to a benefit compared to market allocation. A natural consequence will then be internal rent seeking. We discuss the interrelation between profits, rent seeking and the foundation of organizations. Typically, we expect that highly profitable firms are always founded but it is not clear whether the same is true for firms with less optimistic prospects. We will show that internal rent seeking may lead to a completely reversed result. The impact of internal rent seeking on overall investment and the implications of firm size and competition on the foundation of organizations are also addressed.
Subjects:contests
foundation of organizations
internal rent seeking
JEL:M2
L2
D2
Document Type:Working Paper
Appears in Collections:Bonn Econ Discussion Papers, Bonn Graduate School of Economics (BGSE), Universität Bonn

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