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Green with Envy: Implications for Corporate Investment Distortions

Anand M. Goel and Anjan V. Thakor
The Journal of Business
Vol. 78, No. 6 (November 2005), pp. 2255-2288
DOI: 10.1086/497049
Stable URL: http://www.jstor.org/stable/10.1086/497049
Page Count: 34
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Green with Envy: Implications for Corporate Investment Distortions
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Abstract

We model agents whose preferences exhibit envy. An envious agent's utility increases with what he has and decreases with 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.

Notes and References

This item contains 68 references.

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