Productivity and Credibility in Industry Equilibrium
I analyze a model of production in a competitive environment with heterogeneous firms. Efficient production requires individuals within the organization to take non-contractible actions for which rewards must be informally promised rather than contractually assured. The credibility of such promises emerges from a firm's future competitive rents. Equilibrium competitive rents are inefficiently concentrated at the top. I explore several policy and empirical implications of this result.