Managerial Effort Incentives, X-Inefficiency and International Trade

• The paper investigates formally the old idea that competition brought about by international trade yields welfare gains by reducing internal slack - "X-inefficiency" - in firms. The paper employs a contract-theoretic based, general equilibrium, trade model to demonstrate how international trade affects the contractual relationship in firms so as to induce more managerial effort supply. This increased effort supply is shown to be beneficial from a welfare perspective, partly because firms are X-inefficient. But, while these results partly confirm the economic "folklore", the folklore can be questioned on other grounds.

Subject headings

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Nationalekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Economics (hsv//eng)

Keyword

x-inefficiency

trade

contracts

Economics

Nationalekonomi

Publication and Content Type

vet (subject category)

rap (subject category)