DP3854 Monopoly Rights can Reduce Income Big Time

Author(s): Berthold Herrendorf, Arilton Teixeira
Publication Date: April 2003
Keyword(s): capital accumulation, monopoly rights, technology adoption, total factor productivity, vasted interests
JEL(s): E00
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3854

We study a two?sector version of the neoclassical growth model with coalitions of factor suppliers in the capital producing sectors. We show that if the coalitions have monopoly rights, then they block the adoption of the efficient technology. We also show that blocking leads to a decrease in the productivity of each capital producing sector and to an increase in the relative price of capital; as a result capital stock and production fall in each sector. We finally show that the implied fall in the level of per capita income can be large quantitatively.