Second, if the monopoly power of enterprise is greater than 100 times or less than 0.01 times the median of the industrys sub-category in a certain year (a total of 1,053[16]), then it is judged as an extreme value and replaced with a null value. *,*,***Significant at the 10, 5 and 1 percent levels, respectively. An example of rent seeking is when a company lobbies the government for grants, subsidies, or tariffprotection. How Does Government Policy Impact Microeconomics? For export monopolies, due to the abundance of export subsidies, the customs approval procedures are more complicated. This type of "game" is . It is worth mentioning that the current-year depreciation field just misses the 2010 data, so we basically did not use the 2010 data while using the OP method (Olley and Pakes, 1996). Already have a Self-Study or Full-Immersion membership? 70-74. cookies. The term rent, in the narrow sense of economic rent, was coined by the British 19th-century economist David Ricardo,[3] but rent-seeking only became the subject of durable interest among economists and political scientists more than a century later after the publication of two influential papers on the topic by Gordon Tullock in 1967,[4] and Anne Krueger[5] in 1974. In this case, there are very high levels of rent-seeking with very low levels of output. Volume 2 Issue 1 Monopoly behavior of China's manufacturing enterprises: Rent-seeking or innovation-oriented Monopoly behavior of China's manufacturing enterprises: Rent-seeking or innovation-oriented Guidong Wang China Political Economy ISSN: 2516-1652 Article publication date: 28 June 2019 Permissions Issue publication date: 22 August 2019 (2016), Market segmentation and firm productivity: evidence from Chinese manufacturing enterprises, Journal of World Economy, Vol. The total of wastes from rent-seeking is then the total amount from the government-provided benefits and instances of tax avoidance (valuing benefits and avoided taxes at zero). *,**,***Significant at the 10, 5 and 10 percent levels, respectively, Quantitative regression of cross-terms in multiple dimensions, Notes: The value of t is in parentheses. Yang, R. (2015), Study on the total factor productivity of Chinese manufacturing enterprises, Economic Research Journal, Vol. There would undoubtedly be pushback should regulatory measures or taxes be implemented, potentially leading to unintended consequences. These include white papers, government data, original reporting, and interviews with industry experts. 513-528. Using the 19962013 China Industrial Enterprise Database, this paper studies the monopolistic behavior of Chinese manufacturing enterprises through the measurement of TFP and corporate monopoly power. For big (big) dummy variables, the value is 1 when the companys main business income is greater than or equal to 50 percent quantile; otherwise, the value is 0. This seems like the actions of a firm looking for investment in productivity but in doing so creates an exclusionary effect for more productive firms. (PDF) Natural resources, national income, and resource - ResearchGate THE ANALYSIS In his paper, Tullock (1980) used a single period model to illustrate how non-cooperative behavior among risk-neutral individuals could result in Cournot-Nash equilibria where the rent-seeking ratio' is less than 100%. What is wrong with rent seeking? The subsuming of the economic theory of regulation under the theory of rent-seeking requires an extension of Buchanan's taxonomy. Then, when the coefficient of the state-owned equity vs the monopoly power cross-term (1.state#c.lnmarkup) is significantly positive, it indicates that the state-owned equity monopoly enterprise is more inclined to innovate than the non-state-owned ones[29], and vice versa. 1105-1146. Thus, we carried out the control of firms above the state designated scale in Figure 1 and adopted the latest standards for such scale: Industrial corporations with annual revenues of 20m or more. Taking into account the greater use of the data of industrial enterprises above the state designated scale, this paper uses 2011 as the base (benchmark) year for such scale[21]. As per the empirical results of this paper, the benefits of Chinas incremental system transformation outweigh its disadvantages, and the overall performance of monopoly in manufacturing enterprises is an innovation-oriented monopoly. 118-129. In addition, the models in the tables are uniformly named, that is, Model (1), Model (2) in Table III, and Models (1) and (2) in Table IV are completely equivalent. First, for the state-owned equity (state) variable, if the enterprises shareholding structure contains state capital, the value is 1, and 0 otherwise. This is the dividing line between a rent-seeker and a property developer, which need not be the same person. They result in reduced economic efficiency through misallocation of resources, reduced wealth creation, lost government revenue, heightened income inequality, risk of growing political . Business social service programs are typically designed to provide aid for businesses with the goal of fostering economic prosperity. Fifth, to obtain survival age (age), the calculation formula is as follows: survival age = observation year opening year[31]+1[32]. The measurement model of this paper is set as follows: In the quantitative regression, the interpreted variable is the TFP logarithm (lntfp), and the explaining variable contains the monopolistic power logarithm (lnmarkup) and the cross-terms (1.state#c.lnmarkup, 1.export#c.lnmarkup). That is, Markup=P/MC, where P is the selling price and MC is the marginal cost. [36], Government agents may initiate rent-seeking, as by soliciting bribes or other favors from the individuals or firms that stand to gain from having special economic privileges, which opens up the possibility of exploitation of the consumer. 10, pp. In other words, manufacturing companies with higher monopoly power tend to be more innovation-oriented rather than rent-seeking. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. Using the cross-identification method, this paper identifies three types of special enterprises: those with the same name but sharing dissimilar organization codes, covering 212,259 enterprises, accounting for 4.94 percent of the effective sample); those with the same organization code but sharing different names, covering 1,468,985 such samples and accounting for 34.18 percent of the valid samples; and those sharing different names and different organizational codes (these samples amount to 117,711, accounting for 2.74 percent of the valid samples). Y A subsidy is a benefit given by the government to groups or individuals, usually in the form of a cash payment or tax reduction. This paper also controls the following fixed effects: first, industry fixed effects (i.industry). Comparing Models (1), (10) and (11) reveals that the substitution of the estimation method does not significantly change the coefficient symbol and significance of the three key variables, and does not even significantly change those of the control variables. All he is doing is finding a way to obtain money from something that used to be free.[14]. lnmarkup), the export vs monopoly power (1.export#c.lnmarkup) and the domestic sales vs monopoly power (0.export#c.lnmarkup). 95-117. To encourage innovation, the State promulgated the Patent Law to protect the innovation results of enterprises for a certain period of time. Xu, B. and Xie, J. In this case, the term rent is referred to as one of the sources of income generation that was conceptualized by Adam Smith. Levinsohn, J. and Petrin, A. The innovations in the transportation industry are mostly from Boeing, Airbus, China CRRC, Volkswagen, Toyota, GM and other companies. When the monopoly power has a negative relationship with the TFP, the monopoly enterprise can be judged as a rent-seeking monopoly. The theoretical corruption literature with its emphasis on principal-agent relationships within government and rent creation by corruption politicians has largely, but not entirely, overlooked that contestable rents encourage unproductive use of . For example, at the end of 2014, the merger of the former CNR and CSR Groups into the China CRRC has promoted cooperation and innovation and laid an important foundation for Chinas high-speed rail to go global. The Belt and Road Initiative has provided even more opportunities for small state-owned equity domestic sales companies to go global, which means that in the future, Chinas innovation-oriented monopolies will be on the rise. There are two points to be explained. Regulation and Rent-Seeking: Prices, Profits, and Third-Party - JSTOR The Social Costs of Monopoly Power - 24 Hours access. Balanced trade is an economic model under which countries engage in reciprocal trade patterns and do not run significant trade surpluses or deficits. 79-89. Appendix 3 can be downloaded from the China Industrial Economics website (www.ciejournal.org). Recent studies have examined the relationship between digital platforms, data monopolies and rent seeking. [citation needed], Rent-seeking is an attempt to obtain economic rent (i.e., the portion of income paid to a factor of production in excess of what is needed to keep it employed in its current use) by manipulating the social or political environment in which economic activities occur, rather than by creating new wealth. Rent-seeking is distinguished in theory from profit-seeking, in which entities seek to extract value by engaging in mutually beneficial transactions. The former is rarely intervened by the local (or central) government, whereas the latter mostly enjoys the special care of the local (or central) government, and assumes certain social responsibilities, and even has a veto power of state-owned shares. The connector # indicates a cross-term, the prefix c emphasizes that the variable is a continuous variable, the prefix i indicates a factor variable, the prefix 0 indicates the portion of the factor variables assigned a value of 0, and the prefix 1 indicates the portion of factor variables assigned a value of 1, the prefix L1 indicates that the variable lags a phase (T1). Strictly speaking, it means that after the processing of outliers in corporate time series, there remain 1,053 extreme values in the industry sub-categories. 105 No. Lu, X. and Lian, Y. Rent-seeking and innovation - ScienceDirect International (Global) Trade: Definition, Benefits, Criticisms. For the first question raised at the beginning of this paper, the observation Model (5) shows that, in general, the Chinese manufacturing enterprises are innovation-oriented monopolies. The advantage of replacing the null value is demonstrated by the fact that many sets of median judgment methods can be used simultaneously. On the other hand, with the promulgation of the Patent Law of the Peoples Republic of China in 1984 and the Company Law of the Peoples Republic of China in 1993, along with the gradual improvement of relevant laws and regulations, China is providing better legal protection for R&D and innovation in firms[3]. Rent-seeking doesnt tend to increase productivity in the economy. First, the survival time of enterprises is basically negatively related to TFP. Politicians decide the laws, regulations, and funding allocations that govern industries and government subsidy distributions. 1, pp. Zhou, Y., He, X. and Shen, Y. Grossman, G.M. There are a lot of mistakes in the opening year of the enterprise in the Chinese Industrial Enterprises Database. For the second question raised at the beginning of this paper, the observation Model (1) shows that, Chinas state-owned equity monopolies are more inclined to innovate than the non-state-owned equity monopolies. In the strict sense, it means a relative concept on weights. [citation needed] However, various rent-seeking behaviors are illegal, such as the forming of cartels or the bribing of politicians. Model (4) shows that the TFP of the export firms is still generally larger than that of domestic sales firms[39]. (Solved) - rent-seeking behavior in a monopoly market: a.monopoly 70 No. P A Examples of rent-seeking behavior would include all of the various ways by which individuals or groups lobby government for taxing, spending and regulatory policies that confer financial benefits or other special advantages upon them at the expense of the taxpayers or of consumers or of other groups or individuals with which the beneficiaries . Therefore, the elasticity of the labor output and intermediate inputs can all be used as the selection factors for measuring the monopoly power of firms. In choosing rent-seeking, they can win a bigger portion of a cake in the zero-sum game, whereas choosing innovation gets them an entire new cake in the field. [18] The term monopoly privilege rent-seeking is an often-used label for this particular type of rent-seeking. 199), while the mode is four digits (e.g. Qian, X., Wang, S. and Chen, Y. conditionsPrivacy policy. 1263-1297. 5, pp. But new coalitions form over time, once again shackling society in order to redistribute wealth and income to themselves. When an individual or an entity seeks to increase their own wealth without benefiting society. Thus organizations value rent-seeking over productivity. However, in reality, rent-seeking is dirty, and companies do not expose rent-seeking behavior (Tullock, 1967). Second, among large monopolies, state-owned equity export enterprises are most inclined to innovate; among small monopolies, state-owned equity domestic sales enterprises are most inclined to seek rent. This shows that the reform of the state-owned enterprises in China has achieved remarkable results and the monopoly power of state-owned equity enterprises has maintained steady growth. What kinds of nuances exist between different types of monopolies; are they slightly oriented toward innovation, or slightly oriented to seek rent? This paper mainly uses the CD production function form, which is obtained after logarithmization: In the TFP measurement, aside from the three basic variables of industrial added value (Y_add), labor (L), and capital (K), the OP method requires two extra variables of investment (invest) and enterprise exit (exit). The basic research ideas are as follows: given the factor price Published in China Political Economy. (2016), The time-phased low-markup rate trap of Chinese export enterprises, Journal of World Economy, Vol. Third, the unreasonable[17] monopoly power values (a total of 837[18]) that is greater than 100 or less than 0.01 times of the median is considered as an extreme value and is replaced with a null value. d) rent-seeking behavior. Take your learning and productivity to the next level with our Premium Templates. Economists view such activities as detrimental to the economy and society. (2012), Estimation of total factor productivity of industrial enterprises in China: 1999-2007, China Economic Quarterly, Vol. Log in. For the non-state-owned monopolies, the business operators directly control the private property without business scope restriction faced by the state-owned monopolies. By continuing you agree to the These additional costs would likely deter certain rent-seeking activities. Valuable research and technology reports Rent-seeking is the act of growing one's existing wealth by manipulating the social or political environment without creating new wealth. The fifth category is that the mode of the years of establishment is greater than 1, and the year of establishment is an outlier, such cases are repaired case by case. Guidong Wang (1988) received his PhD Degree from the School of Economics, Nankai University. We also reference original research from other reputable publishers where appropriate. The driving role of innovation in economic growth is not only supported by neoclassical economic growth theory (Solow, 1956), but also further confirmed by the theory of endogenous economic growth in the fields of product category innovation (Judd, 1985; Grossman and Helpman, 1991) and product quality innovation (Grossman and Helpman, 1991; Aghion and Howitt, 1992). The interpreted variable is the TFP logarithm (lntfp), and the industry fixed effect, regional fixed effect and time fixed effect are all controlled in the models. 291-303. Additionally, they suggest that many economic performance measures, such as Gross Domestic Product, include goods and services that are part of the rent-seeking process.[48]. 1, pp. This conclusion is based on the significant negative (t value = 22.17) value of the coefficient of the export vs monopoly power cross-term (1.export#c.lnmarkup) in Model (1). K 78-91. For investment (invest), the calculation can be directly made via the fixed assets in the current year fixed assets in the previous year + depreciation in the current year. However, there are two problems in the actual calculation. Comprehensive company profiles. 16-26. Then, during the economic transition period, are Chinese manufacturing monopolies generally rent-seeking monopolies or innovation-oriented monopolies? Lack of trust between the rent-seekers and the politicians, due to the inherently underhanded nature of the deal and the unavailability of both legal recourse and reputational incentives to enforce compliance, pushes down the price that politicians can demand for favors. An example of this is Japan after World War Two. Once the protection period is expired, all companies can share the innovation fruits. The Province was then adjusted as Chongqing. Log in, Within the finance and banking industry, no one size fits all. Compared with Russias shock therapy in the 1990s, the whale-swallowing rent-seeking in Russia did not arise in China. This is because when the enterprise opened its business in the current year, the year of observation minus the opening year was 0, and the logarithm was meaningless, so we added 1 for positive monotonic transformation as a solution. 16-29. First, when an enterprises fixed assets are null in the previous year, it will not be able to calculate the investment of the enterprise in the current year; second, where the observations of an enterprise in the previous year are interrupted and do not appear in the Chinese Industrial Enterprises Database (due to the scale requirements or incorrect identification of the corporate ID), calculating the investment of the enterprise in the current year would be impossible. Another part of the literature (Li et al., 2009; Coccorese, 2014) uses the price-to-margin ratio (Lerner Index, LI) to represent the monopoly power of the firm, i.e. Multiple collinearities may arise if the key variables are simultaneously added with the cross-terms of the state-owned equity vs monopoly power (1.state#c.lnmarkup), the non-state-owned equity vs monopoly power (0.state#c. For the first type of problem, this paper attempts to exploit the relationship between corporate monopoly power and corporate TFP to explore the specific monopoly types of Chinese monopolies. This is because the monopolies take the means of bribing government officials, striking ties with industry associations, conspiring with related companies and recruiting public relations personnel to obtain product operational rights, possess the production factors and carve up their own niches in the sales market. There are several reasons for this phenomenon, and to explain the first reason, a special historical background must be provided. For example, businesses such as banks can lobby the government for help in the areas of competition, special subsidies, grants, andtariffprotection. The term rent in rent seeking is based on the economic definition of rent, which is defined as economic wealth obtained through shrewd or potentially manipulative use of resources. Create your account View this answer The answer is A. David Ricardo introduced the term "rent" in economics. (2012), Creative accounting or creative destruction? 1, pp. (1974), The political economy of the rent-seeking society, American Economic Review, Vol. 339-351. Language links are at the top of the page across from the title. (2012), Trade and prices with heterogeneous firms, Journal of International Economics, Vol. 45 No. The IVs used here are the monopolistic power log lag 1 (L1.lnmarkup), the state-owned equity vs monopoly power cross-term lag 1 (L1.1#c.lnmarkup), and the export vs monopoly power cross-term lag 1 (L1. To this end, De Loecker and Warzynski (2012) overcame the limitations of traditional methods and proposed a more general measurement method, which was quickly promoted in a short-term (Ren and Zhang, 2013; Gai et al., 2015; Lu and Yu, 2015; Huang et al., 2016). , If there are different politicians that can ensure the delivery of certain benefits to rent-seekers, then the competing politicians will push down the cost of rent-seeking. 24 No. VELEC SYSTEMS Company Profile - Dun & Bradstreet Rent-seeking is a concept in economics that states that an individual or an entity seeks to increase their own wealth without creating any benefits or wealth to the society. 3, pp. 4, pp. Sixth, to obtain asset liquidity (capital_liq), the calculation formula is as follows: asset liquidity = liquid assets/(liquid assets + fixed assets). 64-81. Comparative advantage is an economy's ability to produce a particular good or service at a lower opportunity cost than its trading partners. Brandt, L., Van Biesebroeck, J. and Zhang, Y. [citation needed] Rent-seeking may grow at the cost of economic growth because rent-seeking by the state can easily hurt innovation. Monopoly Rent Seeking under Conditions of Uncertainty - JSTOR Although both rent-seeking (cutting the cake) and innovation (producing the cake) can achieve the profit-seeking purposes, their impacts on social welfare are diametrically opposite. Among them, the most effective median judgment method is as follows: to calculate the median tfp (or markup) of each enterprise in the time series, if a companys TFP (or markup) is greater than 10 times or less than 0.1 times the median in a certain year, it is judged to be an extreme value. Nie, H., Jiang, T. and Yang, R. (2012), Current usage and potential problems of Chinese industrial enterprises database, Journal of World Economy, Vol. Kasahara, H. and Lapham, B. However, the extreme value merging method does not apply to multiple sets of median judgment methods, so in this Model (12), only the most effective set of median judgment methods are subjected to extreme value merging. This is because the front-to-back ratio method is still enforced when there is no extreme value at all, and the data of super-large enterprises may be determined as outliers. In addition, the control variables studied in this paper mainly include the following: state-owned equity (state), the proportion of state-owned shares (state_per), export (export), export density (export_den), survival age (age), asset liquidity (capital_liq), product diversity (diversity) and new product (new). i The sixth category is composed of other complex situations, such a year of establishment needs to be assisted by internet access. [45][46] Thomas Piketty, Emmanuel Saez, and Stefanie Stantcheva have analyzed international economies and their changes in tax rates to conclude that much of income inequality is a result of rent-seeking among wealthy tax payers. Pursuant to the empirical results of this paper, non-state-owned monopolies, export monopolies and small monopolies are more inclined to seek rent than the state-owned equity monopolies, domestic sales monopolies and large monopolies, respectively[46]. Tax planning doesn't add value to society as a whole, but it can be personally profitable. When the monopoly power has a positive relationship with TFP, then the monopoly enterprise can be considered an innovative monopoly. Rent-seeking activities aim to obtain financial gains and benefits through the manipulation of the distribution of economic resources. Dynamic search and list-building capabilities. [15] Another example of rent-seeking is the limiting of access to lucrative occupations, as by medieval guilds or modern state certifications and licensures. To keep advancing your career, the additional CFI resources below will be useful: Become a certified Financial Modeling and Valuation Analyst(FMVA) by completing CFIs online financial modeling classes! However, rent is the easiest to obtain of the three income sources and can require little risk. _ [44], The Nobel Memorial Prize-winning economist Joseph Stiglitz has argued that rent-seeking contributes significantly to income inequality in the United States through lobbying for government policies that let the wealthy and powerful get income, not as a reward for creating wealth, but by grabbing a larger share of the wealth that would otherwise have been produced without their effort. Introduction In the pursuit of profits, economic agents, be they large firms or single individuals, seek to gain an advantage over direct competitors by introducing new goods, services, and technologies. Should measures be taken increase transparency and accountability in government and corporate operations, it is likely many parties would be deterred from engaging in rent-seeking behavior. L 14AZD110); Major Project of Humanities and Social Sciences Key Research Base of the Ministry of Education Industrial Transformation and CPE Upgrading and the Development of Innovation-Oriented Economy: Theoretical and Empirical Research from the Perspective of Factor Price Technology Choice Dynamic Relationship (Approval No. Rent in rent seeking is based on the economic definition of the term, which is defined as economic wealth obtained through shrewd or potentially manipulative use of resources. The existing literature features many studies on the production efficiency of Chinese monopolies, and most of them focus on the impact of one aspect or another. of monopolies. According to Smith, rent is an activity of lending ones own resources in exchange for some benefits. As the Chongqing Municipality was directly under the jurisdiction of the central government in 1997, this paper corrected the areas under the jurisdiction of Chongqing in 1996, including Wanxian City and the Qianjiang and Fuling Districts originally governed by Chongqing on behalf of the Sichuan Province. 1.export#c.lnmarkup). (2015), Factor markets distortion, markup and TFP, Economic Research Journal, Vol. Zhou et al. Therefore, the major issues of this paper are as follows: to make basic judgments on the monopoly types (innovative monopoly, rent-seeking monopoly) of Chinese monopolies and to analyze the difference (innovation-oriented or rent-seeking-oriented) between diversified types (state-owned equity, non-state-owned equity, exports, domestic sales, etc.) ScienceDirect is a registered trademark of Elsevier B.V. (2015), A survey of experimental research on contests, all-pay auctions and tournaments, Experimental Economics, Vol. Shopping cart Similar to the previous OP method (Olley and Pakes, 1996), in the actual quantitative regression, this paper estimated 30 industry categories, respectively. Question: - Chegg - Get 24/7 Homework Help | Rent Textbooks *,**,***Significant at the 10, 5 and 1 percent levels, respectively, Notes: aThe export density can be greater than 100 percent. 2, pp. First, while rent The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode. Upgrading to a paid membership gives you access to our extensive collection of plug-and-play Templates designed to power your performanceas well as CFI's full course catalog and accredited Certification Programs. 88 No.
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