Technological Progress and Rent Seeking

35 Pages Posted: 27 Feb 2021 Last revised: 11 Dec 2023

See all articles by Vincent Glode

Vincent Glode

University of Pennsylvania - The Wharton School

Guillermo Ordoñez

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: December 8, 2023

Abstract

We model firms' allocation of resources across surplus-creating (i.e., productive) and surplus-appropriating (i.e., rent-seeking) activities. Our model predicts that industry-wide technological advancements, such as recent progress in data collection and processing, generically induce a disproportionate and socially inefficient reallocation of resources towards surplus-appropriating activities. As technology improves, firms rely more on appropriation to obtain their profits, endogenously reducing the impact of technological progress on economic progress and inflating the price of the resources used for both types of activities. We apply our theoretical insights to shed light on the rise of high-frequency trading.

Keywords: Resource Allocation, Surplus Appropriation, Misallocation, Economic Growth, Market Making, Electronic Front-Running.

JEL Classification: D21, D24, O33, O41

Suggested Citation

Glode, Vincent and Ordoñez, Guillermo, Technological Progress and Rent Seeking (December 8, 2023). Jacobs Levy Equity Management Center for Quantitative Financial Research Paper , Available at SSRN: https://ssrn.com/abstract=3753042 or http://dx.doi.org/10.2139/ssrn.3753042

Vincent Glode (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

HOME PAGE: http://www.vincentglode.com

Guillermo Ordoñez

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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