This paper discusses the optimal firm size in the presence of influence activities, and the level of individual rent-seeking dependent on the economic situation of the firm. Since size has a discouraging effect on the level of individual rent-seeking but also a quantity effect as the number of rent-seekers increases, the interplay of both effects determines whether the employer chooses an inefficiently small or large firm size. In the given setting, a bad economic situation leads to both a higher probability of a substantial loss and a reduction of productivity. The productivity effect and the two other effects together determine the optimal level of individual rent-seeking.
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Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number
bgse16_2006.
Length: 25 Date of creation: Sep 2006 Date of revision: Handle: RePEc:bon:bonedp:bgse16_2006
Contact details of provider: Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany Fax: +49 228 73 9221 Web page: http://www.bgse.uni-bonn.de/index.php?id=494
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Matthias Kräkel, 2006.
"Firm Size, Economic Situation and Influence Activities,"
Discussion Papers
167, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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Find related papers by JEL classification: D2 - Microeconomics - - Production and Organizations L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior M2 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics
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