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Productivity growth and welfare in a model of allocative inefficiency

Author

Listed:
  • Richard Cothren

    (Virginia Tech)

  • Ravi Radhakrishnan

    (Centre College)

Abstract

We develop a model of learning-by-doing in human capital formation in the presence of allocative inefficiencies. The inefficiencies are a result of lobbying by firms to establish, or prevent, barriers to the perfectly competitive allocation of factors of production (labor). It is shown that lobbying may lead to a static welfare loss depending upon the elasticity of substitution between goods, and the relative lobbying power of firms. Further, productivity growth, via learning by doing, changes the relative lobbying power over time. This may magnify or diminish the static welfare loss in the long-run depending on the level of initial misallocation. Therefore, differences in initial lobbying power and rate of productivity growth between sectors determine the long-run effects of lobbying.

Suggested Citation

  • Richard Cothren & Ravi Radhakrishnan, 2018. "Productivity growth and welfare in a model of allocative inefficiency," Journal of Economics, Springer, vol. 123(3), pages 277-298, April.
    • Handle: RePEc:kap:jeczfn:v:123:y:2018:i:3:d:10.1007_s00712-017-0575-z
    DOI: 10.1007/s00712-017-0575-z
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    References listed on IDEAS

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    Cited by:

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    2. Ravi Radhakrishnan, 2022. "Public expenditure allocation, lobbying, and growth," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(4), pages 756-780, August.

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    More about this item

    Keywords

    Contest; Growth; Learning by doing; Lobbying;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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