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Competition and Performance: The Different Roles of Capital and Labor

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  • Mohnen,Pierre
  • Raa,Thijs,ten

    (MERIT)

Abstract

Neoclassical economists argue that competition promotes efficiency. They consider technology as given though. In the long run technological progress is an important determinant of the level of welfare and Schumpeter argued that monopoly rents help entrepreneurs to capture the gains of R&D and hence to invest in it. We investigate the overall effect of competition on performance. Performance is measured by TFP-growth. As a negative measure of competition we use rent. Rent is defined as the excess factor rewards over and above their perfectly competitive values (marginal productivities). Input-output analysis enables us to calculate rent for the Canadian sectors over a thirty-year period and to decompose it in its capital and labor components. In line with the literature we find that rent has no significant influence on productivity. We find an interesting result however: the components influence performance in opposite directions. Capital rent has a positive role and labor rent a negative one. The neoclassical economists and Schumpeter seem both right, but the mechanisms differ. The use of rent as a source of funding for R&D applies to capital and the argument that rent yields slack pertains to labor.

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Bibliographic Info

Paper provided by Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology in its series Research Memoranda with number 034.

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Date of creation: 2003
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Handle: RePEc:dgr:umamer:2003034

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Web page: http://www.maastrichtuniversity.nl/web/UMPublications.htm

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Keywords: mathematical economics and econometrics ;

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  1. Raa, T. ten, 2005. "Aggregation of productivity indices: The allocative efficiency correction," Open Access publications from Tilburg University urn:nbn:nl:ui:12-171684, Tilburg University.
  2. Thijs Raa, 2005. "Aggregation of Productivity Indices: The Allocative Efficiency Correction," Journal of Productivity Analysis, Springer, vol. 24(2), pages 203-209, October.
  3. Surendra Gera & Wulong Gu & Zhengxi Lin, 2001. "Technology and the demand for skills in Canada: an industry-level analysis," Canadian Journal of Economics, Canadian Economics Association, vol. 34(1), pages 132-148, February.
  4. Nickell, Stephen J, 1996. "Competition and Corporate Performance," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 724-46, August.
  5. Edward Wolff, 2006. "The growth of information workers in the US economy, 1950-2000: the role of technological change, computerization, and structural change," Economic Systems Research, Taylor and Francis Journals, vol. 18(3), pages 221-255.
  6. Mohnen, Pierre & ten Raa, Thijs, 2000. "A general equilibrium analysis of the evolution of Canadian service productivity," Structural Change and Economic Dynamics, Elsevier, vol. 11(4), pages 491-506, December.
  7. Raa, T. ten & Mohnen, P., 2000. "Neoclassical Growth Accounting and Frontier Analysis: A Synthesis," Discussion Paper 2000-67, Tilburg University, Center for Economic Research.
  8. Boone, Jan, 2001. "Intensity of competition and the incentive to innovate," International Journal of Industrial Organization, Elsevier, vol. 19(5), pages 705-726, April.
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Cited by:
  1. Fischer, Justina A.V., 2012. "The choice of domestic policies in a globalized economy: Extended Version," MPRA Paper 37816, University Library of Munich, Germany.
  2. Fischer, Justina AV, 2012. "Globalization and political trust," MPRA Paper 37763, University Library of Munich, Germany.
  3. Fischer, Justina A.V., 2012. "The choice of domestic policies in a globalized economy," MPRA Paper 36990, University Library of Munich, Germany.
  4. Wang, Vey & Lai, Chung-Hui, 2011. "Franchise fee, competition and economic growth," Economic Modelling, Elsevier, vol. 28(5), pages 2090-2099, September.

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