Technological Progress and Rent Seeking

Abstract

We model firms' allocation of resources between surplus-creating (a.k.a., productive) and surplus-appropriating (a.k.a., rent-seeking) activities. We show that industry- or economy-wide technological progresses, such as the recent improvements in processing big data, induce a disproportionate and socially inefficient allocation of resources towards surplus appropriation, even when the associated productivity gains are far larger for surplus-creating activities than for surplus-appropriating activities. As technology improves, firms lean more on rent seeking to obtain their profits, endogenously reducing the impact of technological progress on economic progress and inflating the price of resources that are used for both types of activities.

Keywords: Resource Allocation, Big Data, Surplus Appropriation, Economic Growth.

JEL Classification: D21, D24, O33, O41