Working Paper: CEPR ID: DP2128
Authors: Philippe Aghion; Mathias Dewatripont; Patrick Rey
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.
Keywords: competition; financial discipline; growth; bankruptcy
JEL Codes: E0; L0; O0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Competition (L13) | Reduction in Managerial Slack (D22) |
| Reduction in Managerial Slack (D22) | Increased Technology Adoption (O33) |
| Increased Technology Adoption (O33) | Economic Growth (O49) |
| Competition (L13) | Increased Technology Adoption (O33) |
| Financial Markets (G19) | Reduction in Managerial Slack (D22) |
| Financial Markets (G19) | Increased Technology Adoption (O33) |
| Financial Markets (G19) | Economic Growth (O49) |