Rent‐seeking, R&D, and productivity. (6th February 2020)

• Record Type: Journal Article
• Authors: Lai, Yu‐Bong
• Is Part Of: Scottish journal of political economy. Volume 67:Number 4(2020)
• Page Start: 404
• Page End: 419
• Publication Date: 2020-02-06
• Subjects: corruption -- export subsidy -- interest groups -- lobbying -- R&D -- rent seeking -- trade policy; Great Britain -- Economic conditions -- 1945-1964 -- Periodicals; Great Britain -- Economic conditions -- 1964-1979 -- Periodicals; Great Britain -- Economic conditions -- 1979-1997 -- Periodicals; 330.9411005
• DOI: 10.1111/sjpe.12243
• Languages: English
• ISSNs: 0036-9292

Abstract

Abstract: 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.