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Innovation or Rent-seeking? Allocation of Entrepreneurial Effort in Chinese Private Firms
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TitleInnovation or Rent-seeking? Allocation of Entrepreneurial Effort in Chinese Private Firms  
AuthorHe Xiaogang,Li Xinchun, Jia Zhihan, Deng Hao and Wang Bolin  
OrganizationShanghai University of Finance and Economics;Management School, Sun Yat-sen University;;;; 
Key WordsAllocation of Entrepreneurial Effort; Wealth Prospect; Political Ties; Property Right Protection  
AbstractSince Baumol (1990) explored the productive, unproductive, and destructive entrepreneurship, scholars have recognized that it was necessary to compare the positive or negative effect of entrepreneurial behavior on the social level. It is still an unresolved theoretical problem that under what circumstances entrepreneurs prefer innovation or rent-seeking. In this paper, we establish a model of the allocation of entrepreneurial effort based on his/her wealth prospect; simultaneously we consider the effect of political ties and property right protection and their interaction with wealth prospect on the allocation of entrepreneurial effort. Based on the data of Chinese listed company controlled by the private entrepreneur, we get the following conclusions: (1) Entrepreneur’s wealth prospect significantly affects the allocation of their ability. Under the situation of gain or loss, entrepreneur tends to abandon innovation and choose rent-seeking as the gain increases or loss increases; (2) Political ties prove entrepreneur to innovate and have a capture effect when wealth prospect is in loss frame and an endowment effect in gain frame; (3) Property right protection increases entrepreneur's motivation to innovate and it moderates the wealth prospect and political ties on the allocation of entrepreneurial effort. However, the results of the allocation of entrepreneurial activity will ultimately depend on the interaction of the perceived wealth prospects, political ties and property rights protection. 
Serial NumberWP1166 
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