Firm Size, Economic Situation and Influence Activities
27 Pages Posted: 6 Nov 2006
Date Written: October 2006
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 firm 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
JEL Classification: D2, L2, M2
Suggested Citation: Suggested Citation