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 European Regional Science Association in its series ERSA conference papers with number ersa03p10.
Date of creation: Aug 2003
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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.
- 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.
- Mohnen,Pierre & Raa,Thijs,ten, 2003. "Competition and Performance: The Different Roles of Capital and Labor," Research Memorandum 034, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
- 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-2004-02-29 (All new papers)
- NEP-COM-2004-02-29 (Industrial Competition)
- NEP-GEO-2004-02-29 (Economic Geography)
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