Abstract

http://ssrn.com/abstract=7217
 
 

References (33)



 
 

Citations (42)



 
 

Footnotes (20)



 


 



The Tyranny of the Inefficient: An Enquiry into the Adverse Consequences of Power Struggles


Luigi Zingales


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); University of Chicago - Polsky Center for Entrepreneurship; European Corporate Governance Institute (ECGI)

Raghuram G. Rajan


University of Chicago - Booth School of Business; International Monetary Fund (IMF); National Bureau of Economic Research (NBER)

April 1997

NBER W.P. #5396

Abstract:     
There are many instances where two closely related parties do not agree to mutually advantageous transactions even when there are simple enforceable contracts, and side transfers of fungible resources, that would implement them. Peace treaties are not signed, inefficient regulations are not altered, and possibilities for investment are frittered away. One reason, which has been extensively analyzed in the literature, is the presence of informational asymmetries. In this paper we focus on another potential explanation: the externality generated by the transfer of fungible resources. Unlike in a one-off transaction among unrelated parties, related parties will interact in the future. The very fungibility of the resources that are transferred to facilitate the immediate transaction can make it hard to restrict their use. As a result, if future interactions are influenced by the distribution of current resources, an externality can endogenously arise from the current transaction. Under some circumstances, even transactions that considerably enhance value can be inhibited by the endogenous externality. Agreement typically breaks down when the required transfer is large and the proposed recipient of the transfer is relatively unproductive or poor. The paper examines the implications for a theory of property rights, and for competitive strategy.

Number of Pages in PDF File: 36

JEL Classification: D23, G30, L22

working papers series





Download This Paper

Date posted: June 17, 1998  

Suggested Citation

Zingales, Luigi and Rajan, Raghuram G., The Tyranny of the Inefficient: An Enquiry into the Adverse Consequences of Power Struggles (April 1997). NBER W.P. #5396. Available at SSRN: http://ssrn.com/abstract=7217 or http://dx.doi.org/10.2139/ssrn.7217

Contact Information

Luigi Zingales
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-3196 (Phone)
773-834-2081 (Fax)

Chicago Booth School of Business Logo

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
University of Chicago - Polsky Center for Entrepreneurship
Chicago, IL 60637
United States
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Raghuram G. Rajan (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-4437 (Phone)
773-702-0458 (Fax)
International Monetary Fund (IMF) ( email )
700 19th Street NW
Washington, DC 20431
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
773-702-9299 (Phone)
773-702-0458 (Fax)
Feedback to SSRN


Paper statistics
Abstract Views: 3,702
Downloads: 465
Download Rank: 34,033
References:  33
Citations:  42
Footnotes:  20

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo5 in 0.406 seconds