Rent Seeking/Corruption and Growth: A Simple Model

Posted: 3 Aug 2000

See all articles by George-Marios Angeletos

George-Marios Angeletos

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Tryphon Kollintzas

Athens University of Economics and Business - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: May 2000

Abstract

The goal of this paper is to propose a simple paradigm for understanding rent seeking and corruption in the growth context. We develop an endogenous growth model where entrepreneurs, as intermediate-good producers, may engage in rent-seeking activities. The latter are defined by the following properties: (i) their internal effect is positive; (ii) their external effect is negative; and (iii) they use real resources. Our formulation may be viewed as a parable for theft and fraud; organized crime; industrial espionage; lobbying and policy influence; misgovernance, institutional inefficiency, tax evasion, etc. The economy is shown to fall into a trap of high rent seeking/corruption and low growth. Agents' perceptions about the external effects of rent seeking, and the complementarity or substitutability of intermediate inputs, are crucial. Contrary to conventional wisdom, higher returns to capital and more competition can be detrimental for welfare and growth, as they induce more rent seeking/corruption. Finally, our paradigm yields insights into the relationship of R&D, politicoeconomic equilibrium, income distribution, and growth, as well as the design of tax/growth policies in the presence of rent seeking/corruption.

JEL Classification: E10, H20, O10

Suggested Citation

Angeletos, George-Marios and Kollintzas, Tryphon, Rent Seeking/Corruption and Growth: A Simple Model (May 2000). Available at SSRN: https://ssrn.com/abstract=231962

George-Marios Angeletos (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Tryphon Kollintzas

Athens University of Economics and Business - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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United Kingdom

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