Abstract

http://ssrn.com/abstract=320781
 
 

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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 Mannheim

Andrew Postlewaite


University of Pennsylvania - Department of Economics

July 11, 2002

PIER Working Paper No. 02-018

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. This incentive cost arises as a natural consequence of the manager's firm-specific human capital.

Note: Please note that this paper is the updated version of PIER 02-012.

Number of Pages in PDF File: 14

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Date posted: July 31, 2002  

Suggested Citation

Mailath, George J. and Nocke, Volker and Postlewaite, Andrew, The Incentive Costs of Internalizing Externalities (July 11, 2002). PIER Working Paper No. 02-018. Available at SSRN: http://ssrn.com/abstract=320781 or http://dx.doi.org/10.2139/ssrn.320781

Contact Information

George J. Mailath (Contact Author)
University of Pennsylvania - Department of Economics ( email )
3718 Locust Walk
Philadelphia, PA 19104
United States
215-898-7749 (Phone)
215-573-2057 (Fax)
HOME PAGE: http://www.ssc.upenn.edu/~gmailath
Volker Nocke
Department of Economics, University of Mannheim ( email )
D-68131 Mannheim
Germany
HOME PAGE: http://nocke.vwl.uni-mannheim.de
Andrew Postlewaite
University of Pennsylvania - Department of Economics ( email )
3718 Locust Walk
Philadelphia, PA 19104
United States
215-898-7350 (Phone)
215-573-2057 (Fax)
HOME PAGE: http://www.econ.upenn.edu/~apostlew
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