Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
7388313 | Review of Economic Dynamics | 2016 | 27 Pages |
Abstract
We introduce two mechanisms that temper the strength of the negative externality: Transitory firm types and the possibility of buyouts. We show that both sharply reduce the inefficiency due to innovation by low ability innovators. But with caveats: If firm types are completely transitory, then the notion of firm heterogeneity is for practical purposes lost. Buyouts improve efficiency, but the efficiency gain depends significantly on the strength of the innovator's ability to extract rents from incumbents through the buyout.
Related Topics
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Economics and Econometrics
Authors
Rasmus Lentz, Dale T. Mortensen,