Forms of governance and the size of rent-seeking

Luis Corchon

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

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.

Date: 2004-04
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Journal Article: Forms of governance and the size of rent-seeking (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:cte:werepe:we041905

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