Productivity growth and welfare in a model of allocative inefficiency

Richard Cothren and Ravi Radhakrishnan ()
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Richard Cothren: Virginia Tech
Ravi Radhakrishnan: Centre College

Journal of Economics, 2018, vol. 123, issue 3, No 4, 277-298

Abstract: Abstract We develop a model of learning-by-doing in human capital formation in the presence of allocative inefficiencies. The inefficiencies are a result of lobbying by firms to establish, or prevent, barriers to the perfectly competitive allocation of factors of production (labor). It is shown that lobbying may lead to a static welfare loss depending upon the elasticity of substitution between goods, and the relative lobbying power of firms. Further, productivity growth, via learning by doing, changes the relative lobbying power over time. This may magnify or diminish the static welfare loss in the long-run depending on the level of initial misallocation. Therefore, differences in initial lobbying power and rate of productivity growth between sectors determine the long-run effects of lobbying.

Keywords: Contest; Growth; Learning by doing; Lobbying (search for similar items in EconPapers)
JEL-codes: C72 D72 O41 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:123:y:2018:i:3:d:10.1007_s00712-017-0575-z

DOI: 10.1007/s00712-017-0575-z

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