The allocation of entrepreneurial efforts in a rent-seeking society: Evidence from China

This paper considers four types of entrepreneurial efforts: productive activities, aggressive rent seeking, defense against rent extraction, and leisure. It examines how entrepreneurs allocate efforts when facing dual-dealing relationships with politicians in a rent-seeking society: entrepreneurs not only pursue additional benefits through rent seeking, but also try to avoid extortions by politicians. Using unique city-level and firm-level data across China, we demonstrate that Chinese entrepreneurs survive in a twisted world: ordinary entrepreneurs would desire better institutional environment, but if institutional improvement is not available, they would prefer political connections which are often preoccupied by special interest groups and/or large-sized firms. Journal of Comparative Economics 44 (2) (2016) 353-371. South China Center for Market Economy Research and Scientific Laboratory of Economic Behavior, South China Normal University, China; South China Center for Market Economy Research, South China Normal University, China; Graduate School of Public and International Affairs, University of Ottawa, Canada. (C) 2015 Association for Comparative Economic Studies. Published by Elsevier B.V. All rights reserved.