Monopoly Rights: A Barrier to Riches

Abstract

Our thesis is that poor countries are poor because they employ arrangements for which the equilibrium outcomes are characterized by inferior technologies being used, and being used inefficiently. In this paper, we analyze the consequences of one such arrangement. In each industry, the arrangement enables a coalition of factor suppliers to be the monopoly seller of its input services to all firms using a particular production process. We find that eliminating this monopoly arrangement could well increase output by roughly a factor of 3 without any increase in inputs.*The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.

Slow Development and Special Interests*

“…We see our work as complementing these other papers; with the exception of Parente and Prescott (1999), these papers highlight different factors that affect the incentives of special interest groups to form and impede economic development. 3 Parente and Prescott (1999) highlight the same factor as us. However, they do not allow the number of industries or the frontier technology of each industry to increase over time.…”

“…Second, it shows that the permanent effect of special interest groups on an economy's development is to increase the volatility of output. Therefore, it questions the claim made by Parente and Prescott (1999) that the existence of groups with monopoly control over a factor supply to an industry and the ability to increase the innovation cost in their own industry permanently retards a country's economic development.…”

“…However, they do not allow the number of industries or the frontier technology of each industry to increase over time. As a result, groups never break up in Parente and Prescott (1999), and so never 2 Olson (1982), Mokyr (1990), and Parente and Prescott (2000) all argue that differences in the prevalence of special interest groups across time and across countries account for the evolution of international income differences. 3 Dinopoulos and Syropoulos (2001), for example, examine how the costs of rent-seeking affects the incentives of monopoly producers to increase the cost of innovation in a quality ladder model of development with a fixed number of industries.…”

New Evidence from Brazil on Trade Liberalization and Productivity Growth*

“…This article relates to the literature of political and institutional barriers to growth (e.g., Holmes and Schmitz, 1995;Parente and Prescott, 2000). In these studies, sectors with some degree of monopoly power over the supply of specific factors can impose prices and block adoption of new technology.…”

“…In these studies, sectors with some degree of monopoly power over the supply of specific factors can impose prices and block adoption of new technology. In Parente and Prescott (1999), for instance, a coalition of factor suppliers that is the monopoly seller of its input services can dictate work practices and member's wages. The monopoly right is protected by law, which makes it costly to enter the market with more productive technology.…”