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The Incentive Costs of Internalizing Externalities
George J. Mailath University of Pennsylvania - Department of Economics Volker Nocke Department of Economics; University of Oxford - Department of Economics Andrew Postlewaite University of Pennsylvania - Department of Economics May 2002 PIER Working Paper No. 02-012 Abstract: We present a dynamic agency model in which changes in the structure of a firm affect its value due to altered incentives. There may be disadvantages in merging two firms even when such a merger allows the internalization of externalities between the two firms. Merging, by making unprofitable certain decisions, increases the cost of inducing managers to exert effort.
Note: Please note that this paper has been updated to PIER 02-018. Working Paper SeriesDate posted: May 27, 2002 ; Last revised: August 14, 2002Suggested CitationContact Information
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