Competition, Financial Discipline and Growth

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Competition, Financial Discipline and Growth

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Title: Competition, Financial Discipline and Growth
Author: Aghion, Philippe; Dewatripont, Mathias; Rey, Patrick

Note: Order does not necessarily reflect citation order of authors.

Citation: Aghion, Phillipe, Mathias Dewatripont, and Patrick Rey. 1999. “Competition, Financial Discipline and Growth.” Review of Economic Studies 66 (4) (October): 825–852.
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Abstract: This paper develops a general equilibrium model of technological adoption in an economy populated by 'satisficing' entrepreneurs whose main objective is to minimise innovative effort while keeping the firm alive. In such an economy, product market competition is shown to have a stimulating effect on growth. Indeed, by reducing the amount of slack a manager can afford while keeping his firm alive, competition, combined with the threat of liquidation acts as a disciplinary device which fosters technology adoption and therefore growth. We then investigate how the existence of financial markets affects the importance of this growth-enhancing effect of competition.
Published Version: doi:10.1111/1467-937x.00110
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