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On Adverse Selection of Technologies

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  • Matthias Kräkel

Abstract

This paper discusses the interrelation between the choice of technology and rent seeking. First, the players have to decide on the purchase of a technology. If the technology is acquired, realized profits are distributed via a rent-seeking contest. I can show that players will reject profitable technologies ("adverse selection") or underinvest, if they anticipate excessive rent seeking. The results are applied to the empirical findings on differences in income and total factor productivity across countries. These findings can be explained if developing countries are more prone to rent seeking than industrial ones due to their less stable property-rights structures.

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Bibliographic Info

Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 164 (2008)
Issue (Month): 2 (June)
Pages: 343-355

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200806)164:2_343:oasot_2.0.tx_2-v

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Cited by:
  1. Dominique Demougin & Anja Schöttner, 2010. "Technology adoption under hidden information," Journal of Economics, Springer, vol. 100(1), pages 1-18, May.
  2. Beckmann, Michael & Kräkel, Matthias, 2012. "Internal rent seeking, works councils, and optimal establishment size," European Economic Review, Elsevier, vol. 56(4), pages 711-726.

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