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Endogenuous Cycles and rent seeking

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  • Vadim Khramov

    ()
    (Department of Economics Higher School of Eeconomics, Centre for Advanced Studies, Moscow, Russia)

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    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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    File URL: http://www.cas.hse.ru/Repec/pdf/CAS_RN_2007_8.pdf
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    Bibliographic Info

    Paper provided by Laboratory for Macroeconomic Analysis 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;

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