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Rent‐seeking, R&D, and productivity
Author(s) -
Lai YuBong
Publication year - 2020
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/sjpe.12243
Subject(s) - rent seeking , productivity , economics , competition (biology) , microeconomics , government (linguistics) , production (economics) , marginal product , economic rent , language change , politics , labour economics , public economics , macroeconomics , art , ecology , linguistics , philosophy , literature , biology , political science , law
To investigate whether rent‐seeking discourages productivity, we consider a third‐market model, in which a domestic firm and a foreign firm engage in both Research and Development (R&D) and output competition. We show that the relationship between rent‐seeking and productivity depends on two forces. On the one hand, rent‐seeking increases the marginal benefit of R&D and encourages productivity. On the other hand, a lower production cost due to R&D enables the government to extract the rent from the firm to a greater extent and discourages the productivity. Which force is dominant depends on the level of corruption or, as an alternative interpretation, the weight the government attaches to political contributions. Unlike the monotonic relationship proposed by the literature, we find a non‐monotonic relationship between rent‐seeking and productivity.