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Firm Size, Economic Situation and Influence Activities

Matthias Kräkel

No 16/2006, Bonn Econ Discussion Papers from University of Bonn, Bonn Graduate School of Economics (BGSE)

Abstract: This paper discusses the optimal firm size in the presence of influence activities, and the level of individual rent-seeking dependent on the economic situation of the firm. Since size has a discouraging effect on the level of individual rent-seeking but also a quantity effect as the number of rent-seekers increases, the interplay of both effects determines whether the employer chooses an inefficiently small or large firm size. In the given setting, a bad economic situation leads to both a higher probability of a substantial loss and a reduction of productivity. The productivity effect and the two other effects together determine the optimal level of individual rent-seeking.

Keywords: economic situation; firm size; influence activities; politicking; rent-seeking (search for similar items in EconPapers)
JEL-codes: L2 D2 M2 (search for similar items in EconPapers)
Date: 2006
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