Rent‐Seeking, Market Structure, and Growth
24 Pages Posted: 20 Jun 2013
Date Written: July 2013
Abstract
We study the role of productive and unproductive entrepreneurship in economic growth, in a setting where firms compete in both economic and political markets. Specifically, firms compete for market share through cost‐reducing technological innovation, and they vie for influence over government transfer policy through rent‐seeking activities. We find that rent‐seeking affects growth in two ways: it allows firms to ignore economic competition, leading to less innovation, and it alters the number of firms that are supported in equilibrium. The former effect is negative, while the latter is ambiguous. We show how these effects depend on various characteristics of economic and political markets.
Keywords: Economic growth, entrepreneurship, political economy, R&D, welfare
JEL Classification: D72, L13, O31
Suggested Citation: Suggested Citation
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Rent‐Seeking, Market Structure, and Growth
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