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Entrepreneurship and The Regulation Dice Game
Joab CoreyFlorida State University
2013 Creative Ideas Teaching Workshop
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Economics…
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…And Boxing
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… And Entrepreneurship
What is Rent-Seeking
Rent-Seeking: Actions by individuals and groups designed to restructure public policy in a manner that will either directly or indirectly redistribute more income to themselves or the projects they promote.
Examples of rent-seeking can include: bribery, political lobbying, and limiting access to occupations.
So What’s The Problem With Rent-Seeking?
There are two ways people can acquire wealth: production and plunder…
Production involves making the economic pie bigger, plunder involves taking someone else’s piece.
Rent-seeking, Entrepreneurship, and Growth
According to Schumpeter (1912): Entrepreneurs are those who:
1. Introduce new goods2. Introduce new production methods3. Open a new market4. Employ a new source of raw materials5. Carry out the new organization of any industry
…. Innovate in a way that grows or expands the economyThe possibilities are endless!
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Being Entrepreneurial
Ken Olson, chairman/founder of Digital Equipment Corp., 1977: "There is no reason anyone would want a computer in their home."
Fred Smith’s (FedEx) Yale University Senior Project Grade Remark: "The concept is interesting and well-formed, but in order to earn better than a 'C,' the idea must be feasible."
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Being Entrepreneurial
Would you have invested?
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Being Entrepreneurial
Who would have thought….
Rent-seeking, Entrepreneurship, and Growth
Baumol (1990): Entrepreneurs can also innovate by discovering new ways to take the wealth of others.
Rent-seeking, Entrepreneurship, and Growth
So entrepreneurial resources can be employed both productively and unproductively…
The way in which they are employed depends on the Rules of the Game!
Regulations and Occupational Licensing as an Example of Rent-Seeking
A common form of rent-seeking is using the government to pass regulations designed to keep potential competitors from entering an industry.
Regulation, Competition, and Economic Growth
Competition promotes the efficient use of resources and provides a continuous stimulus to improve, innovate, operate efficiently, keep costs down, and cater to the preferences of consumers.
A heavily regulated business climate tends to reduce competition and lead to a lack of economic progress…
Regulation, Competition, and Economic Growth
For Example: Lets look at my home state of West Virginia!
Regulation, Competition, and Economic Growth
For Example: Lets look at my home state of West Virginia!
Regulation, Competition, and Economic Growth
“Thirty years ago, there were 80 occupations for which one or more state governments required a license. Today there are roughly 1100…” – (Miller et. al. 2010, pg. 120)
Some regulation occupations include:1. Wallpaper hanger in California2. Barbering in many states3. Florists in Louisiana…
The Regulation Dice Game!
Let’s play a game to see how different regulatory environments affect economic growth!
World Bank DataCountry Ease of Doing
Business Rank# of days it takes to start a business
# of procedures it takes to start a business
Income per capita (2010 data)
Singapore 1 3 3 $41,120
Hong Kong 2 3 3 $31,757
United States 4 6 6 $47,153
Average 2.33 4 4 $40,010
Rep. of Congo 181 160 10 $2,970
Venezuela 177 141 17 $13,590
Haiti 174 105 12 $671
Average 177.33 135 13 $5,744
Conclusion
The use of excessive regulation and rent-seeking (in any form) over more productive forms of entrepreneurship will likely retard economic growth because it involves using more resources on activities designed to take (or prevent) the wealth of others and less resources on activities designed to create wealth for everyone!
