This paper discusses the optimal firm size in the presence of influence activities, and the level of individual rent-seeking dependent on the economic situation of the firm. Since firm size has a discouraging effect on the level of individual rent-seeking but also a quantity effect as the number of rent-seekers increases, the interplay of both effects determines whether the employer chooses an inefficiently small or large firm size. In the given setting, a bad economic situation leads to both a higher probability of a substantial loss and a reduction of productivity. The productivity effect and the two other effects together determine the optimal level of individual rent-seeking.
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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number
2391.
Matthias Kräkel, 2006.
"Firm Size, Economic Situation and Influence Activities,"
Discussion Papers
167, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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Find related papers by JEL classification: D2 - Microeconomics - - Production and Organizations L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior M2 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics
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