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<p>This paper examines the relationship between the quality of institutions and economic performance both at an economy-wide level as well as at a sectoral level, thus reflecting income distribution among different types of agents. For this reason, we introduce rent&#xa0;seeking competition in&#xa0;a dynamic stochastic general equilibrium model with two types of households: "workers" and "capitalists". In this framework, each type of agent allocates a fraction of its effort time to extract a fraction of a contestable prize. For each type of agent, the contestable prize consists of the income of the other agents, while the degree of extraction depends on the quality of institutions. Our analysis provides insights both into the long-run equilibrium properties as well as the dynamic characteristics of our model with respect to institutional quality. We find that, in terms of wedges and propagation mechanism, rent seeking introduces an additional friction in the economy that distorts agents’ decisions about productive work. The introduction of rent seeking activities has a negative impact both at the economy-wide as well as the sectoral level. Moreover, institutional quality shapes both the macroeconomic as well as income distribution outcome.</p>

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Aggregate and distributional aspects of rent seeking activities in a dynamic stochastic general equilibrium setup

  • 期刊论文

  • 发表日期：

    2025年2月13日

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  • Tryfonas Christou,
  • Apostolis Philippopoulos,
  • Vanghelis Vassilatos

摘要

This paper examines the relationship between the quality of institutions and economic performance both at an economy-wide level as well as at a sectoral level, thus reflecting income distribution among different types of agents. For this reason, we introduce rent seeking competition in a dynamic stochastic general equilibrium model with two types of households: "workers" and "capitalists". In this framework, each type of agent allocates a fraction of its effort time to extract a fraction of a contestable prize. For each type of agent, the contestable prize consists of the income of the other agents, while the degree of extraction depends on the quality of institutions. Our analysis provides insights both into the long-run equilibrium properties as well as the dynamic characteristics of our model with respect to institutional quality. We find that, in terms of wedges and propagation mechanism, rent seeking introduces an additional friction in the economy that distorts agents’ decisions about productive work. The introduction of rent seeking activities has a negative impact both at the economy-wide as well as the sectoral level. Moreover, institutional quality shapes both the macroeconomic as well as income distribution outcome.