Competition and Performance: The Different Roles of Capital and Labor
AbstractNeoclassical 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 InfoPaper provided by Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology in its series Research Memoranda with number 034.
Date of creation: 2003
Date of revision:
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Web page: http://www.maastrichtuniversity.nl/web/UMPublications.htm
mathematical economics and econometrics ;
Other versions of this item:
- ten Raa, Thijs & Mohnen, Pierre, 2008. "Competition and performance: The different roles of capital and labor," Journal of Economic Behavior & Organization, Elsevier, vol. 65(3-4), pages 573-584, March.
- Thijs ten Raa & Pierre Mohnen, 2003. "Competition and Performance: The Different Roles of Capital and Labor," ERSA conference papers ersa03p10, European Regional Science Association.
- Mohnen, P. & Raa, T. ten, 2003. "Competition and Performance: The Different Roles of Capital and Labor," Discussion Paper 2003-112, Tilburg University, Center for Economic Research.
- Pierre Mohnen & Thijs Ten Raa, 2003. "Competition and Performance: The Different Roles of Capital and Labor," CIRANO Working Papers 2003s-66, CIRANO.
- L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-12-14 (All new papers)
- NEP-COM-2003-12-14 (Industrial Competition)
- NEP-ENT-2003-12-14 (Entrepreneurship)
- NEP-INO-2003-12-14 (Innovation)
- NEP-TID-2003-12-14 (Technology & Industrial Dynamics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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