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Forms of governance and the size of rent-seeking

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  • Luis Corchón

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Abstract

In this paper we present a model of an organization where agents can choose between productive and rent-seeking activities. We consider two governance institutions, single ownership and corporate governance or parliament rule. Applications include models of internal organization of a firm, of a kingdom ruled either by an absolute monarch or by the parliament, and location where agents can locate either in the court and become rent-seekers, or in an industrial city and become entrepreneurs. Our main goal is to study the size of rent-seeking activities under the two governance regimes. Under single ownership, rent-seeking reflects the taste of the owner for such activities and the possibilities of extracting rents from productive agents (who finance rent-seeking). The main conclusion of the paper is that, under corporate governance, the size of the rent-seeking sector may be larger than under single ownership despite the fact that in the former nobody has an intrinsic taste for rent-seeking activities.
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Suggested Citation

  • Luis Corchón, 2008. "Forms of governance and the size of rent-seeking," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 30(2), pages 197-210, February.
  • Handle: RePEc:spr:sochwe:v:30:y:2008:i:2:p:197-210 DOI: 10.1007/s00355-007-0224-5
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    References listed on IDEAS

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    12. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
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    Cited by:

    1. Libman Alexander & Schultz André & Graeber Thomas, 2016. "Tax Return as a Political Statement," Review of Law & Economics, De Gruyter, vol. 12(2), pages 377-445, July.

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