Economic Rents Research Articles

Convergence of City Relational Network, Production Sector Structure, and Regional Development

There is a strong correlation between government intervention and urban production structure in China. Particularly, the outputs of the cities partly come from the economic rent of city relational network (CRN), which is a unique regional policy and administrative hierarchy. In order to analyze the gravity flows of CRN under the nonmarket mechanism, we attempt to build a new gravity model that adopts the production sector. The new gravity produces relational data with direction, which makes it possible to use social network analysis (SNA) and overcome the endogeneity of the linear model. The empirical results show that (1) modified new gravity model can effectively capture the distribution of CRN gravity flows and the convergence of regional development in China, (2) the CRN, which especially stems from the government financial intervention, increases the share of nontradable sectors in cities, and (3) adjustment of the production sector leads to the difference of CRN gravity flows, so asymmetric flows distribution leads to the heterogeneity of regional economic performance. Cities with higher share of nontradables have relatively slower productivity growth in long-term.

Rents: How Marketing Causes Inequality by Gerrit De Geest

Book review of Gerrit De Geest, Rents: How Marketing Causes Inequality (Beccaria Book 2018), ISBN: 978-1-7325112-0-0. In his book titled Rents: How Marketing Causes Inequality, Gerrit De Geest, previously a professor at the Utrecht School of Economics and now Charles F Nagel Professor of International and Comparative Law at the Washington University School of Law, examines the problem of economic rents, diagnoses their causes and offers some possible legal solutions

Defense Sector Politics

Ownership and control of defense industrial firms affords the military power, autonomy, and a claim to economic rents. Why do some countries succeed at shifting some or all such firms from military to civilian ownership and control, while others do not? I argue that differing configurations of relative civilian and military coalitional and institutional strength contribute to outcomes. Civilian and military must find party and executive-branch allies who can compete for them to craft or defeat legislation affecting their interests, but coalition building alone is insufficient. Actors must also cultivate executive bureaucratic institutions able to design and implement policies promoting their interests. How coalitions and institutions form, ossify, or fail to develop is assessed through a comparative study of Chile, Argentina (1983–1989), and Argentina (1989–1997).

Finance Capitalism versus Industrial Capitalism: The Rentier Resurgence and Takeover

Marx and many of his less radical contemporary reformers saw the historical role of industrial capitalism as being to clear away the legacy of feudalism—the landlords, bankers, and monopolists extracting economic rent without producing real value. However, that reform movement failed. Today, the finance, insurance, and real estate (FIRE) sector has regained control of government, creating neo-rentier economies. The aim of this postindustrial finance capitalism is the opposite of industrial capitalism as known to nineteenth-century economists: it seeks wealth primarily through the extraction of economic rent, not industrial capital formation. Tax favoritism for real estate, privatization of oil and mineral extraction, and banking and infrastructure monopolies add to the cost of living and doing business. Labor is increasingly exploited by bank debt, student debt, and credit card debt while housing and other prices are inflated on credit, leaving less income to spend on goods and services as economies suffer debt deflation. Today’s new Cold War is a fight to internationalize this rentier capitalism by globally privatizing and financializing transportation, education, health care, prisons and policing, the post office and communications, and other sectors that formerly were kept in the public domain. In Western economies, such privatizations have reversed the drive of industrial capitalism. In addition to monopoly prices for privatized services, financial managers are cannibalizing industry by leveraging debt and high-dividend payouts to increase stock prices. JEL Classification: B26, N20, B51

Strongmen politics and investment flows: China’s investments in Malaysia and the Philippines

We examine Chinese President Xi Jinping’s close relations with Malaysian Prime Minister Najib Razak (2009-2018) and Philippine President Rodrigo Duterte (2016-), an outcome of China’s Belt & Road Initiative (BRI). We argue strongmen use their political power, shaped by their own political-economic systems, to tap into the BRI’s available capital to fuel their political agendas. We illustrate this argument in Malaysia, a country with a centralized party system, and in the Philippines, one with an oligarchy-driven economy with decentralized political parties. In Malaysia, Najib was able to directly use BRI to generate economic rents, reward business allies, and dispense patronage through company directorships and subcontracts to party members to strengthen his political position. In contrast, the Philippines’ inherently coalitional system highlights the messiness as well as compromises in states with decentralized political competition. While Duterte is perceived to be an all-powerful autocrat, in reality he needs the support of major political elites, oligarchs, and local politicians for most major decisions. Duterte still used BRI to reward his cronies, weaken the opposition, and tame the oligarchs.

COVID-19 acceleration in digitalisation, aggregate productivity growth and the functional income distribution

This paper characterises the conventional and the digital sector of the EU economy since the late 90s and introduces a two sector growth model which highlights structural differences between the two sectors. In contrast to conventional goods and services, digital goods and services are more easily scalable but require more upfront intangible investment. These features require consideration of fixed costs and a departure from perfect competition and raise issues about market entry. Another important dimension is the skill demand of both sectors, with the latter requiring a larger share of workers with digital skills. Since COVID-19 is expected to induce a persistent increase of demand for digital services, we use this model to estimate the likely economic impacts. We are in particular interested how the digital transition is affecting the labour market and the functional distribution of income. The paper shows how the distribution of economic rents between workers with digital skills and platforms is determined by labour supply conditions and entry barriers. This suggests that there is a role for competition policy and labour market policies to support the digital transition.

A Comparison of Approaches to Modelling Non-Tariff Measures

Non-tariff measures (NTMs) are a prominent feature of many recent free trade agreement (FTA) negotiations. The implementation of NTMs within computable general equilibrium (CGE) models has been relatively simple to date, with modelers generally incorporating NTMs as tariff equivalents via export or import taxes or as import-augmenting technological (iceberg) change. Our study compares and contrasts two new methods with the traditional mechanisms used. The first new method is the willingness to pay method developed by Walmsley and Minor (2020); and the second, introduced here, provides a new mechanism for adjusting the exporters’ production costs directly, referred to as the export cost method. We find that the choice of mechanism can have important consequences for the estimated impact of changes in NTMs, with mechanisms that raise productivity leading to larger changes in real GDP than those that treat NTMs as associated with economic rents or demand shocks. We emphasize the importance of careful consideration being given to the nature of the NTMs being investigated, the econometric estimates of the associated trade costs, and the CGE model mechanisms being used to assess the impacts of changes in NTMs.

Multinationality and the value of green innovation

When do multinational corporations (MNCs) derive the most from internalizing the transfer of proprietary technological knowhow? We revisit this question, which lies at the core of theories on multinationality and performance, from the perspective of corporate strategy involving a mix of green versus nongreen innovation effort and foreign operations focusing on countries with high versus low environmental standards. We find that high exposure to foreign markets with more stringent environmental regulations stimulates MNCs' green patent applications. Predictably, the pursuit of green innovation is positively associated with firm value in the long run. This long-run advantage produces higher economic rents when MNCs' home countries rely on more clean energy for power generation, have a more developed economy and have a more effective government. We further show that this long-run value enhancement effect is more pronounced in Mining & Oil and energy sectors (i.e., more polluting) than sales and service sectors (i.e., less polluting). In addition, MNCs' environmental competitive advantage obtained through green innovation activities is coupled with exposure to MNCs' host countries with high long-term and femininity orientations. Overall, our study highlights that green technology development is a main source of value creation for multinationals.

Network centrality and value relevance of insider trading: Evidence from Europe

AbstractWe examine the value relevance of insider trades in Europe and find that both purchases and sales of well‐connected insiders are positively associated with long‐term abnormal returns. We argue that the market perceives the purchases of networked insiders as more informative, leading to higher returns. For sales of networked insiders, the market decreases their negative information content, leading to lower negative returns. Our results do not support the view that insiders use their informational advantage to extract economic rents in the form of dollar profits. We posit that they use their networks to provide signals to the market when trading.

Consequence of Heterogeneous Economic Rents under the Maximum Degree Comfortability (MDC) based Procedure

If preferences of households are heterogeneous, there is no guarantee that a steady state exists other than corner solutions, and only the most advantaged household will eventually possess all the capital in the economy. This is also true if economic rents are obtained persistently and unevenly among households. I examine whether this is true even if households behave not on the basis of rational expectations but on the basis of keeping the most comfortable capital-wage ratio and show that there is no guarantee in this case as well.

Trust and the clean food imaginaries: an analysis of a short food supply chain from Romania

As concerns about food safety and environmental issues gain more attention in the public eye, organic labels are growing in popularity, being presented as the solution for a more sustainable and conscious food system. Yet, organic certificates did not manage to actively change the food system but merely created a niche to be exploited, thus many of the environmental-friendly practices being co-opted by corporations without addressing the larger issues of concern. This paper looks at how small producers, who are otherwise excluded from accessing the premium prices of organic food markets, can still seize community economic rent through the close relationship formed as part of a Community supported agriculture. Using a qualitative research methodology, based on semi-structured interviews and secondary data analysis, and drawing from Alternative food Networks literature, I am investigating one such alternative network from Romania called Peasant Box (Cutia Taranului) which re-spatialize the distribution chain, by creating a direct selling network between food producers and consumers. In my research I focused on the way in which both consumers and producers perceive the value of food and on the distinct discursive constructions regarding food, as either valued based on the place of origin (authenticity) or on the way it was produced (naturalness). Peasant Box operates outside formalised certification, the food is considered good by the virtue of trust, which is formed through the long-lasting relationship between consumers and producers.

Estimating Marginal Costs of Additional Water Flow from a Loblolly Pine Stand in South Georgia, United States

AbstractCertain silvicultural operations enhance the flow of ecosystem services derived from forestlands. Monetary estimates of an increased flow of such services that can impact forest management decisions are generally lacking. Here we use a growth-and-yield model to estimate physical changes in water yield and assign monetary values to these changes under different regimes of forest thinning and planting density in a loblolly pine (Pinus taeda L.) stand located in South Georgia. The model is expanded to develop corresponding measures of water yield and net present value per each management scenario. Results show an expected inverse relationship between average annual water yield and economic rent. Further, the marginal costs associated with producing an extra liter of water (per unit area) decrease as thinning intensifies and planting density declines (US$1.35/kL to US$0.72/kL under a site index of 18.3 m and US$1.20/kL to US$0.66/kL, assuming a site index of 21.3 m) relative to our baseline scenario. We emphasize that a landowner’s profits may be negatively affected by the provision of improved water yield downstream as it competes with timber extraction. Monetary payments are needed to encourage the net production of water from existing loblolly pine stands in South Georgia, United States.

Social Value of Patents: Evidence from the U.S. Court of Appeals for the Federal Circuit

To encourage invention, society awards inventors exclusive rights through patents. Patent law trades off incentives to invent new technologies against reduced access to already invented technology. However, patent law being national, it is difficult to investigate the trade off without confound by national economic and scientific changes. We exploit a unique quasi-natural experiment which changed patent law sub-nationally, within the United States. Beginning 1982, the Court of Appeals for the Federal Circuit shifted law in favor of patent owners, to degrees varying geographically by judicial circuit. For businesses in complex technology industries, we find that the CAFC increased costs to users by more than US$5.6 billion per year, but did not significantly affect the technological quality of patented inventions. Our work contributes to a more nuanced appreciation of socially optimal patent law. Shifting the law in favor of patent owners, a policy to encourage innovation, seemed to increase economic rents without commensurate effect on invention quality.

The Case for a Sustainable Excess Profits Tax

Taxes designed to counter unsustainable behaviours that lead to environmental destruction are usually styled as surtaxes on purchase prices. It makes more sense to locate the source of the profits derived from such behaviours and tax them in order to internalize the environmental costs that are currently externalized to current and future societies. Since profit extracted by externalizing environmental risks constitutes economic rent, it could be taxed at high rates without creating inefficiencies. We propose a method for doing so in the form of a “sustainable excess profits tax”—a SEP tax. The tax base of a SEP tax can be constructed by using life cycle analysis methods to identify the portion of corporate profit that is attributable to the externalized environmental costs of production and distribution at all stages of supply chains. We establish the core elements of a SEP tax, demonstrate its theoretical justification, and examine its practical feasibility.See the elevator pitch of this abstract in Tax Papers Unlocked by Break Into Tax here: https://youtu.be/1ei-C4wYBvw.

From public goods theory to municipal capitalism: Evaluating investments in sport venues from an urban entrepreneurial perspective

ABSTRACT Using public goods theory as a guidepost, scholars have correctly observed that subsidies for sport venues are a product of the monopolistic structure of major sport leagues. Without challenging the observation that economic rent is being extracted from cities, we utilize the municipal capitalism framework to explore the ongoing appeal of teams to cities. We note that rising levels of economic segregation required local officials to aggressively pursue partnerships to offer competitive club goods that deflect regional economic activity into their taxing jurisdictions. After reviewing 116 published academic papers to establish the two frameworks (public goods and municipal capitalism), we use three previously studied case studies to assess outcomes in light of a municipal capitalism perspective. This permits us to provide insights into the use of various sources of public capital to deflect economic activity with the potential to enhance economic development and tax revenues. The work also identifies the need for additional research to compare and contrast classical public goods theory, municipal capitalism, and local government initiatives in an era of “fend for yourself federalism.”

An Evaluation of Risk-Based Agricultural Land-Use Adjustments under a Flood Management Strategy in a Floodplain

Agricultural damage due to floods in the Indus basin’s fertile land has been the most damaging natural disaster in Pakistan so far. Earthen dikes are protecting the vast areas of the floodplain from regular flooding. However, the floodplain is attractive to farmers due to its fertility and experiences regular crop production within and out of the dike area. This paper evaluates the flood risk in a floodplain of the Chenab river in Pakistan and recommends land-use changes to reduce the flood risk for crops and associated settlements within the study area. The objective of the land-use change is not just to reduce flood losses but also to increase the overall benefits of the floodplain in terms of its Economic Rent (ER). This preliminary study analyses the economic impacts of the risk-based land-use improvements on existing floodplain land uses. Expected Annual Damage (EAD) maps were developed using hydrodynamic models and GIS data. The developed model identified the areas where maize can be economically more productive compared to rice under flood conditions. Promising results were obtained for the settlement relocations. It was also observed that the infra-structure, running parallel to the river, plays a significant role in curtailing the extent of floods. The results show that a combination of structural and non-structural measures proves more effective. The study also recommends the inclusion of social and environmental damages as well as other types of non-structural measures to develop the most effective flood management strategy.

Management of small-scale fisheries and their issues: Case study in Sibolga, North Sumatera, Indonesia

Small-scale fisheries dominate the fishing industry in Indonesia, and more than 90% of Indonesia’s fishing vessel is estimated to be less than 30 GT. Small-scale fisheries issues could vary by region in Indonesia, based on their characteristics, so the government requires different and effective fisheries development programs and initiatives. Sibolga, North Sumatera, is a fisheries centre in Indonesia where small-scale fishers and industrial fishing vessels co-exist in the same port. For instance, the issues and management strategies addressed have to be approached in several different ways to develop sustainability. The purpose of this research is to examine the management of small-scale fisheries and their issues in the study area. The study was carried out in 2019. Primary and secondary data were used for this analysis. The analysis of data used a qualitative approach. Social and structural aspects should be discussed in the management of small-scale fisheries. Regulations are expected to raise the economic rents of small-scale fishing activities and, on the other hand, to apply a resource tax to small-scale fishermen adapted to current social and institutional conditions.

Коректність використання міжнародної оцінки ефективності інноваційно-інвестиційних проектів

The own practical experience of an estimation of the innovation and investment projects realized in real practice is presented and the typical mistakes which authors of research in this direction assume are generalized: absence of the proved features of each project, ie the account of economic rent; mandatory sensitivity analysis when substantiating complex projects; availability and assessment of additional income at the liquidation stage of the project; careless attitude to the determination of the interest rate of income and investments that may be involved in the project; mandatory pre-planned research is required.

Standing out from the crowd: Dedicated institutional investors and strategy uniqueness

AbstractResearch summaryThis article examines the effect of dedicated institutional investors on firms’ strategy uniqueness. We build on the uniqueness paradox where unique strategies are important drivers of economic rent, yet create an information problem whereby CEOs face discounts from the capital market, thus discouraging them from selecting unique strategies. We propose dedicated institutional investors as a partial remedy to the uniqueness paradox. Dedicated institutional investors invest in gaining private information about their investments, devote effort to understanding firms’ strategies, and reduce capital market pressure. Thus, dedicated institutional investors can encourage CEOs to pursue more unique strategies. Our empirical results show the positive influence of dedicated institutional investors on strategic uniqueness, which is even stronger when firms operate in industries that are hard to value.Managerial summaryUnique strategies can be an important way for managers to create long‐term value. However, some managers shy away from implementing such strategies, fearing that the short‐term oriented capital market does not fully understand the long‐term benefits of unique strategies and hence punishes them. Our study shows that investors who are long‐term‐oriented, focused, and committed help resolve this issue. These owners gather in‐depth private information about their investments, devote effort to understanding firms’ strategies, and reduce capital market pressures. Hence, their commitment and patience can encourage CEOs to pursue more unique strategies. Our study reflects the high levels of responsibility that investors have on strategic decision‐making. Therefore, we recommend to intensify the communication between investors and firms on strategic topics (e.g., in form of stewardship policies).

The Destruction of Social Capital In Indonesia

Background: Business failure in the economic system causes various economicactors to potentially become rent-seekers in an imperfect political system. Sugar isan agricultural commodity that, thus far, is a public good that needs governmentregulation. This study aims to determine the social capital of Indonesia's sugarinterest groups and to determine the dominant variable in Indonesia's sugarindustry. Materials and Methods: This research uses a type of explanatory researchthat has a high relationship level because it not only has independent andcomparative values but also serves to explain and predict the relationship with aqualitative approach between variables. Relationship analysis using DecisionExplorer version 3.3 software. Results: analysis of the relationship of and variablein the sugar industry, the more variables involved in the loop, the most importantrelationship between variables in the loop, the most important loop is loop 4consisting of economic rent, the refined sugar market, entrepreneurs in food andbeverage, lobbying, government. Conclusion: It is concluded from the findings ofthis study that the social capital of Indonesia's sugar interest groups consists of 9loops, Almost every variable has a weak strength to social capital and leads todamage.