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Forms Of Governance And The Size Of Rent-Seeking

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  • Luis C. Corchon

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Abstract

In this paper we present a model of an organization where agents can choose between productive and rent-seeking activities. We consider two governance institutions, single ownership and corporate governance or parliament rule. Applications include models of internal organization of a firm, of a kingdom ruled either by an absolute monarch or by the parliament, and location where agents can locate either in the court and become rent-seekers, or in an industrial city and become entrepreneurs. Our main goal is to study the size of rent-seeking activities under the two governance regimes. Under single ownership, rent-seeking reflects the taste of the owner for such activities and the possibilities of extracting rents from productive agents (who finance rent-seeking). The main conclusion of the paper is that, under corporate governance, the size of the rent-seeking sector may be larger than under single ownership despite the fact that in the former nobody has an intrinsic taste for rent-seeking activities.

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Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we041905.

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Date of creation: Apr 2004
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Handle: RePEc:cte:werepe:we041905

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  1. Rodrik, Dani & Subramanian, Arvind & Trebbi, Francesco, 2002. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," CEPR Discussion Papers 3643, C.E.P.R. Discussion Papers.
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  3. Tirole, Jean, 2001. "Corporate Governance," Econometrica, Econometric Society, vol. 69(1), pages 1-35, January.
  4. Gradstein, Mark, 2002. "Governance and Growth," CEPR Discussion Papers 3270, C.E.P.R. Discussion Papers.
  5. Gradstein, Mark, 2004. "Governance and growth," Journal of Development Economics, Elsevier, vol. 73(2), pages 505-518, April.
  6. Perez-Castrillo, J David & Verdier, Thierry, 1992. " A General Analysis of Rent-Seeking Games," Public Choice, Springer, vol. 73(3), pages 335-50, April.
  7. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1991. "The Allocation of Talent: Implications for Growth," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 503-30, May.
  8. Daron Acemoglu, 1993. "Reward Structures and the Allocation of Talent," CEP Discussion Papers dp0143, Centre for Economic Performance, LSE.
  9. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
  10. Shapiro, Carl, 1989. "Theories of oligopoly behavior," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 6, pages 329-414 Elsevier.
  11. David Stasavage, 2002. "Credible Commitment in Early Modern Europe: North and Weingast Revisited," Journal of Law, Economics and Organization, Oxford University Press, vol. 18(1), pages 155-186, April.
  12. Baland, Jean-Marie & Francois, Patrick, 2000. "Rent-seeking and resource booms," Journal of Development Economics, Elsevier, vol. 61(2), pages 527-542, April.
  13. Torvik, Ragnar, 2002. "Natural resources, rent seeking and welfare," Journal of Development Economics, Elsevier, vol. 67(2), pages 455-470, April.
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