… is from pages 23-24 of my Mercatus Center colleague Matthew Mitchell’s 2014 paper “The Pathology of Privilege: The Economic Consequences of Government Favoritism” (footnotes deleted; links added):
For example, economist Chun-Lei Yang has shown that as rent-seeking activities grow more prevalent, firms have less of an incentive to invest in productivity-enhancing research and development. Thus, privileged firms are less likely to innovate.
Empirical research supports this claim. For example economists Stefanie Lenway, Randall Morck, and Bernard Yeung studied a decade’s worth of data from 130 steel firms to look for differences between firms that lobby heavily and those that do not. They found that the most active lobbyers “tend to be larger, older, less diversified, and less profitable than non-lobbyers” and concluded that protection “appears to reward less innovative firms.”
