Abstract

A model of allocation of heterogeneous individual ability between rent seeking and productive activity is proposed in order to explain the slow economic growth and high apparent unemployment of Italian Mezzogiorno. Two versions of the model are designed to capture legal rent seeking in the public sector (redundant public employees), and, respectively, illegal rent seeking in the organised criminal activity. In the first version of the model the individuals can choose to become either workers or, if they are able, entrepreneurs in the productive activity, or rent-seeking workers. If the number of rent seekers is fixed and the wage rate is flexible, the productive activity can permanently bear the weight of the rent-seeking activity, without affecting the growth rate. But if the wage rate is fixed at the rent rate level (public salary), the productive activity tends to reduce. In the second version of the model the individuals can choose to become workers or entrepreneurs either in the productive activity or in the rent-seeking activity. If the entrepreneurs obtain a more than proportional rent w.r.t. their ability, then the rent-seeking activity tends either to disappear or to grow, thus affecting both the level and the long run economic growth rate, depending on a minimum threshold level of the rent rate. However, if the group of ablest rent-seeking entrepreneurs forms a coalition, then a local stable fixed point is possible. Several aspects in the development of the Italian Mezzogiorno can thus find an explanation, and some policy implications can follow.