Entrepreneurship, Rent-seeking and Economic Development

The presence of rent-seeking entreprenership activities does not depends on "genetically predisposition" to free-raidering, but from the different structure of the two activities (productive and unproductive). The effects that derive from the work of this mechanism are multiples: 1. the increase of the number of rent-seeking entrepreneurs (legal and illegal) brings to an increase in the tax-drag on productive economy (such tragging is the sum of legal and illegal taxation); 2. the increasing "fiscal drag" causes the diminishing of the level of profits in the productive sector, generating, in the long run, the exit of marginal productive firms; 3. the contraction of the output leads to an increase of prices in the market of locally produced goods, generating a loss of their competitiveness in front of external firms. To avoid such negative effects there is the need for policies to encourage and facilitate the productive entrepreneurial activities. Any policies that modifies the structure of the payoffs in the rent-seeking sector, will push the activities in the productive sector. Any action that will insure a better market mechanism, a stable structure of the property rights, the abolition of any restriction of entry in professions will increase the returns of the productive sectors, lowering the returns of the rent-seeking sector.