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Competition and performance: The different roles of capital and labor

  • ten Raa, Thijs
  • Mohnen, Pierre

Neoclassical economists argue that competition promotes efficiency, but Schumpeter argues that it is monopoly rents that help entrepreneurs to invest in R&D. We investigate the overall effect of competition on total factor productivity growth (TFP) growth. We use rent, defined as the factor reward above its perfectly competitive value, as a negative measure of competition. Our main finding is that performance is positively associated with rents on capital but not with rents on labor. Neoclassical economists and Schumpeter may both be right, but the mechanisms differ.

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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 65 (2008)
Issue (Month): 3-4 (March)
Pages: 573-584

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Handle: RePEc:eee:jeborg:v:65:y:2008:i:3-4:p:573-584
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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  1. Aghion, Philippe, et al, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," Review of Economic Studies, Wiley Blackwell, vol. 68(3), pages 467-92, July.
  2. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: An Inverted-U Relationship," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 701-728, May.
  3. Nickell, S.J., 1993. "Competition and Crporate Performance," Economics Series Working Papers 99155, University of Oxford, Department of Economics.
  4. 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.
  5. Ten Raa, T. & Mohnen, P., 2002. "Neoclassical growth accounting and frontier analysis : A synthesis," Other publications TiSEM b3c67537-f899-4cf5-a5cb-c, Tilburg University, School of Economics and Management.
  6. repec:ner:tilbur:urn:nbn:nl:ui:12-90106 is not listed on IDEAS
  7. repec:ner:tilbur:urn:nbn:nl:ui:12-86157 is not listed on IDEAS
  8. Mohnen, P. & Ten Raa, T., 2000. "A general equilibrium analysis of the evolution of Canadian service productivity," Other publications TiSEM aae1ef0b-8460-49d3-bb4e-8, Tilburg University, School of Economics and Management.
  9. Harris, Christopher & Howitt, Peter & Vickers, John & Aghion, Philippe, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," Scholarly Articles 12375013, Harvard University Department of Economics.
  10. Ten Raa, T., 2004. "Aggregation of Productivity Indices : The Allocative Efficiency Correction," Discussion Paper 2004-62, Tilburg University, Center for Economic Research.
  11. Ten Raa, T., 2005. "Aggregation of productivity indices : The allocative efficiency correction," Other publications TiSEM 0c775438-4bfa-44bd-8111-2, Tilburg University, School of Economics and Management.
  12. repec:ner:tilbur:urn:nbn:nl:ui:12-171684 is not listed on IDEAS
  13. 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 & Francis Journals, vol. 18(3), pages 221-255.
  14. 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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