Efficient Influence Activities with Endogenous Rent

This paper analyzes the effects of influenceactivities on organizational efficiency ina principal-agent framework with endogenousrent. It shows that, with endogenousrent, influence activities canimprove efficiency even if theirinformative value is low. Effects on thedissipation rate of rent are alsoconsidered. In particular, it is shownthat, with endogenous rent, more powerfulincentives on influence activities only increasethe dissipation rate when the sum ofthe elasticities of the influence costsfunction and of the production function isgreater than one.