Skip to main content
Article
The organizational cost of protection
Journal of International Economics (1994)
  • Neil Vousden, Australian National University
  • Neil Campbell, Australian National University
Abstract

This paper offers another explanation for the proposition that protection induces slack. It employs a model of a hierarchic firm in which the firm's owner cannot observe the cost type or the effort level of his manager. A production subsidy, by stimulating output, may increase the marginal information rents that have to be paid to the manager for higher effort. The resulting increase in the firm's marginal cost of effort leads to reduced managerial effort amplifying the intra-firm effort distortion if effort is initially below the optimal level and yielding an organizational cost of protection additional to the standard deadweight cost.

Keywords
  • organizational cost of protection
Publication Date
September 1, 1994
Publisher Statement
Citation only

Vousden, N. & Campbell, N. (1994). The organizational cost of protection. Journal of International Economics, 37(3-4), 219-238

Access the journal

© Copyright Elsevier, 1994

Citation Information
Neil Vousden and Neil Campbell. "The organizational cost of protection" Journal of International Economics Vol. 37 Iss. 3-4 (1994)
Available at: http://works.bepress.com/neil_campbell/10/