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What is the process of exit from declining industries? Is it efficient or inefficient? It is clear that some policy makers believe that it is inefficient, as is evidenced by their support for rationalisation schemes. Classics on investment behaviour, such as Salter (1966) and Nickell (1978), and introductory economics texts suggest that the exit process works well and that the least efficient plants close first. But there is a growing body of literature which has carefully examined the conditions under which non-optimal exit behaviour may occur, stressing the problems arising from game playing between competitors and game playing between firms and governments. Building on that theme, this paper explores the conflicts which occur between stakeholders and managers in the firm. It highlights the possibility of inefficient outcomes with examples drawn from the UK steel casting industry.

Almost all the literature on inefficiencies in …