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Endogenuous Cycles and rent seeking

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Author Info
Vadim Khramov () (Department of Economics Higher School of Eeconomics, Centre for Advanced Studies, Moscow, Russia)
Abstract

This paper is an attempt to reconsider one of the fundamental results of endogenous cycle theory, which was reached in the paper by Farmer and Guo (1994), by introducing more realistic assumptions about profit allocation in the economy. The hypothesis that profit enters the household’s budget through a separate channel is replaced by the hypothesis that economic profit turns into factor payments as a result of rent seeking. We believe that when economic profit occurs in the economy, a sector of agents which spend resources on capturing it appears, and this is the process referred to as rent seeking mechanism in our model. This assumption changes the agents’ inter-temporal optimization problem, such that conditions for endogenous cycles to occur change depending on the persistency of return to rent seeking. In this paper it is shown that even under large returns to scale in the production sector and a rather low depreciation rate of efforts in the rent seeking sector endogenous cycles do not occur.

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Publisher Info
Paper provided by CAS in its series Working Papers with number CAS_RN_2007_8.

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Length: 26 pages
Date of creation: Nov 2007
Date of revision:
Handle: RePEc:cas:wpaper:cas_rn_2007_8

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Related research
Keywords: indeterminacy sunspots rent seeking endogenous cycles

Find related papers by JEL classification:
E00 - Macroeconomics and Monetary Economics - - General - - - General
E25 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
C62 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Existence and Stability Conditions of Equilibrium
C68 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computable General Equilibrium Models

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