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Monopoly rights can reduce income big time

Berthold Herrendorf () and Arilton Teixeira ()

Macroeconomics from University Library of Munich, Germany

Abstract: We ask which part of the observed cross-country differences in the level of per capita income can be accounted for by monopoly rights in the labour market. We answer this question in a calibrated growth model with two final goods sectors. The novel feature being that monopoly rights in the capital-producing sector shield insiders from competition by outsiders and permit coalitions of insiders to choose inefficient technologies or working practices. We find that monopoly rights can lead to quantitatively much larger reductions in the level of per capita income than previously demonstrated. This comes about because they do not only reduce TFP in capital-producing sector but also increase the relative price of capital. This reduces the capital-labour ratio in the whole economy. The implied predictions about the price of capital goods relative to consumption goods and the investment share in output are quantitatively consistent with the cross-country facts.

Keywords: cross-country income differences; cross-country productivity differences; monopoly rights; relative price of capital; capital accumulation. (search for similar items in EconPapers)
JEL-codes: E (search for similar items in EconPapers)
Date: 2004-04-26
New Economics Papers: this item is included in nep-reg
Note: Type of Document - pdf
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Related works:
Working Paper: Monopoly rights can reduce income big time (2004) Downloads
Working Paper: Monopoly rights can reduce income big time (2004)
Working Paper: Monopoly Rights can Reduce Income Big Time (2003) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:0404023

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