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Cambridge Journal of Economics Advance Access originally published online on November 8, 2006
Cambridge Journal of Economics 2007 31(3):327-348; doi:10.1093/cje/bel035
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© The Author 2006. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Even the bad times are good: a behavioural theory of transformation pressure

Lennart Erixon*

* Stockholm University

Address for correspondence: Department of Economics, Stockholm University, 106 91 Stockholm, Sweden: email: lex{at}ne.su.se

A theory of transformation pressure was developed in Sweden in the 1990s which suggested that structural changes, rationalisations and innovations are stimulated by profit crises, arising, for example, from negative demand shocks and restrictive economic policies. Firms will then either become more creative or abandon an overconfident, risk-prone and irrational status quo strategy. A qualified theory states that productivity will increase as external pressures become stronger but only up to a certain point. A competing qualified theory maintains that productivity is maximised if periods of hard pressure are succeeded by periods of financial and technical consolidation, scale advantages and weaker demands for defensive actions to raise productivity.

Key Words: Transformation pressure • X-inefficiency • Productivity growth • Irrationality • Economic psychology

JEL classifications: D24, D81, L21, O31

Manuscript received July 16, 2004; final version received June 26, 2006.


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