Rent-seeking and capital accumulation

Abstract

A general model incorporating rent-seeking activities in the standard neoclassical model of capital accumulation is presented. The welfare of the representative agent is negatively affected by the efficiency of rent-seeking activities. Although intuitive, this result is not obvious because long-run income can be positively affected by more efficient rent-seeking activities. The model is used to provide explanations for some recent experiences in developing countries, including the relative poor performance of economies that experience a move to a more decentralized system and the observed path of total factor productivity (TFP) in countries like Ireland and Venezuela. (JEL D23, D74, O40, O41, O47)