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The Dark Side of Internal Capital Markets: Divisional Rent-Seeking and Inefficient Investment / David S. Scharfstein, Jeremy C. Stein.
- Format:
- Book
- Author/Creator:
- Scharfstein, David S.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w5969.
- NBER working paper series no. w5969
- Language:
- English
- Subjects (All):
- Resource allocation--Mathematical models.
- Resource allocation.
- Physical Description:
- 1 online resource: illustrations (black and white);
- Other Title:
- The Dark Side of Internal Capital Markets
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 1997.
- Cambridge, Mass. : National Bureau of Economic Research, 1997.
- Summary:
- We develop a model that shows how rent-seeking behavior on the part of division managers can subvert the workings of an internal capital market. In an effort to stop rent-seeking, corporate headquarters will be effectively forced into paying bribes to some division managers. And because headquarters is itself an agent of outside investors, the bribes may take the form not of cash, but rather of preferential capital budgeting allocations. One interesting feature of our model is a kind of socialism' in internal capital allocation, whereby weaker divisions tend to get subsidized by stronger ones.
- Notes:
- Print version record
- March 1997.
- Includes bibliographical references.
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