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Forms of governance and the size of rent-seeking

  • Luis Corchón


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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Article provided by Springer in its journal Social Choice and Welfare.

Volume (Year): 30 (2008)
Issue (Month): 2 (February)
Pages: 197-210

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Handle: RePEc:spr:sochwe:v:30:y:2008:i:2:p:197-210
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  1. Daron Acemoglu, 1993. "Reward Structures and the Allocation of Talent," CEP Discussion Papers dp0143, Centre for Economic Performance, LSE.
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  6. Perez-Castrillo, J David & Verdier, Thierry, 1992. " A General Analysis of Rent-Seeking Games," Public Choice, Springer, vol. 73(3), pages 335-50, April.
  7. Tiroley, Jean, 2000. "Corporate Governance," CEI Working Paper Series 2000-1, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  8. Torvik, Ragnar, 2002. "Natural resources, rent seeking and welfare," Journal of Development Economics, Elsevier, vol. 67(2), pages 455-470, April.
  9. 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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  13. Shapiro, Carl, 1989. "Theories of oligopoly behavior," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 6, pages 329-414 Elsevier.
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