We model firms' allocation of resources between surplus-creating (a.k.a., productive) and surplus-appropriating (a.k.a., rent-seeking) activities. We show that industry-wide technological advancements, such as the recent progress in the collection and processing of big data, induce a disproportionate and socially inefficient reallocation of resources towards surplus appropriation, even when the associated productivity gains are far larger for surplus-creating activities than for surplus-appropriating activities. As technology improves, firms lean more on rent seeking to obtain their profits, endogenously reducing the impact of technological progress on economic progress and inflating the price of the resources used for both types of activities.
Financial Literacy bubbles Resource Allocation rent seeking surplus creation speculative trading lobbying market power economic growth imitation innovation technology litigation