Research
Working papers and research in progress
If you're interested in a paper, you can always request the latest working paper version by sending an e-mail to p.heijnen@rug.nl.
Efficiency and equity: A general equilibrium analysis of rent-seeking (2022)
Joint with Ben Heijdra (University of Groningen)
Abstract: We study the rent-seeking phenomenon using a simple, static general equilibrium model. The economy consists of two sectors, both employing a constant returns-to-scale technology with labor as its sole input. One of the sectors is a monopoly, where a continuum of agents compete for a share of monopoly profits (i.e.~rent). Agents are heterogeneous in labor productivity and rent-seeking ability: they face a choice between engaging in (productive) work or vying for a share of the rent (i.e. a contest against other rent-seekers). At the aggregate level, rent-seeking reduces the available amount of labor in the economy and thereby lowers output and welfare (rent-seeking is inefficient). At the individual level, rent-seeking shifts income towards rent-seekers. Consequently, an economy with few rent-seekers tends to have high income inequality: an effect that is exacerbated by the fact that rent is decreasing in the number of rent-seekers (low levels of rent-seeking increase inequity). This tradeoff between efficiency and equity is the primary focus of this paper. We investigate how the distribution of rent-seeking ability and the correlation between labor productivity and rent-seeking ability shape this tradeoff.
Rent seeking, capital accumulation, and macroeconomic growth (2022)
Joint with Ben Heijdra (University of Groningen)
Abstract: We study the effects of time-using rent-seeking activities on the macroeconomic allocation and the economic growth rate. We formulate a highly stylized three-sector general equilibrium model with overlapping generations of individuals. The production side features one sector producing the capital good and two consumption goods sectors. All sectors operate under constant returns to scale technology with human and physical capital as inputs. One of the consumption goods sectors is a monopoly, where a continuum of agents compete for a share of monopoly profits. Agents are heterogeneous in their (intrinsically useless) rent-seeking ability. In the benchmark model each agent decides during youth on how much time to spend on lobbying activities, education, and production work. An intergenerational human capital externality of the `shoulders of giants' type ensures that the model features endogenous growth. The rewards to rent-seeking accrue during youth and part of the additional income is saved. Interestingly, a move from a perfectly competitive economy to one involving monopolization and rent-seeking increases the steady-state economic growth rate in the benchmark model. We identify three main mechanisms affecting the growth rate under monopoly and rent-seeking, namely (a) the kind of inputs used in the rent-seeking competition (raw time or education level), (b) the type of growth engine (human or physical capital externality), and (c) the time of life at which the rent-seeking booty is received (youth or old-age). The conclusions for the benchmark model are robust to changes in the mechanisms for (a) and (b) but not for (c). If rent-seeking rewards accrue during old-age then the move from a perfectly competitive economy to one involving monopolization and rent-seeking decreases the steady-state economic growth rate.
Environmental quality provision by a multi-product monopolist (2021)
Abstract: This paper investigates the incentives of a multi-product monopolist to offer a range of products of differing environmental quality when consumers care about the average quality on offer. The profit-maximizing menu of products underprovides quality. While this is a general result from the screening literature, the externality exacerbates it and a simple subsidy is not sufficient to achieve the optimal level of quality. As a potential remedy, several forms of belief manipulation are investigated, i.e.\ the situation where either the monopolist increases the consumers' perception of average quality or where an adversary, like an environmental interest group, increases the prominence of the low-quality product. Whether this increases average quality depends on the specification of the utility function. Precise conditions under which average quality increases are formulated.
A Theory of Cherry Picking (2020)
Joint with Allard van der Made (ACM)
Abstract: We investigate the endogenous acquisition of information in sender-receiver games when information is verifiable. In our setting, there is uncertainty about whether the sender and the receiver will experience a loss. The sender can acquire information about the probability that a loss will occur, while the receiver can reduce the loss. Both actions are costly. By dispersing her information, the sender can change the receiver's perception about the likelihood of loss and (potentially) persuade him to reduce the loss by more than he would have done in the absence of this information. We show that there is a unique perfect Bayesian Nash equilibrium where the sender acquires information but only shares information that indicates that the loss is likely to happen. The receiver takes into account this biased source of information and exerts effort to reduce the loss accordingly. Compared to the social optimum, when the loss is sufficiently high vis-\`a-vis the cost of acquiring information, the amount of information acquired (and dispersed) is too low.
On the Computation of Equilibrium in Discontinuous Economic Games (2020)
Abstract: In many (game-theoretic) models of price competition, mixed-strategy Nash-equilibria naturally occur. For firms, it is an equilibrium to randomly draw a price from a non-degenerate distribution whose support is an interval on the real line. Computing this distribution is a nontrivial task except in special cases. This paper proposes a procedure to numerically calculate such an equilibrium. Examples illustrate that the procedure is fast and accurate.