Openness And Productivity: A Model Of Trade And Firm-Owners' Effort

Topics:
Organization
Tags:
Finance,
Operational Accounting,
Owner,
Sales,
Sales Force Management,
University Of Missouri
Source:
University of Missouri

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Overview: This paper asks the questions: when countries open up, what are the incentives of firm owners to invest in the productivity of their firms? Why do they wait until the country opens up to do so? Motivated by actions of actual firm owners facing import competition in Portugal, the author sets up a simple model in which firm owners maximize the utility of profits and leisure. The model can explain why firm owners wait for the impact of import competition to invest in productivity. The key insight is that with openness the price of leisure increases, causing firm owners to decrease leisure, putting more effort into productivity and therefore getting more income in return.

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Format: PDF | Size: 470KB | Date: Oct 2006 | Pages: 41

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