Green with Envy: Implications for Corporate Investment Distortions

47 Pages Posted: 24 Sep 2003

See all articles by Anjan V. Thakor

Anjan V. Thakor

Washington University, Saint Louis - John M. Olin School of Business; European Corporate Governance Institute (ECGI)

Anand M. Goel

Stevens Institute of Technology

Abstract

We model agents whose preferences exhibit envy. An envious agent's utility is increasing in what he has and decreasing in what others have. With this setup we are able to provide a new perspective on the nature of investment distortions with centralized and decentralized capital budgeting systems. Centralized capital budgeting leads to corporate socialism in investments in multidivisional firms, whereas decentralized capital budgeting leads to overinvestment. Numerous additional testable predictions are also generated.

JEL Classification: G3, G31

Suggested Citation

Thakor, Anjan V. and Goel, Anand Mohan, Green with Envy: Implications for Corporate Investment Distortions. Journal of Business, Forthcoming. Available at SSRN: https://ssrn.com/abstract=434320 or http://dx.doi.org/10.2139/ssrn.434320

Anjan V. Thakor

Washington University, Saint Louis - John M. Olin School of Business ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Anand Mohan Goel (Contact Author)

Stevens Institute of Technology ( email )

Hoboken, NJ 07030
United States

HOME PAGE: http://www.anandgoel.org

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