Title: X-inefficiency and nonpecuniary rewards in a rent-seeking society: A neglected issue in the property rights theory of the firm
Abstract: Several recent papers have stressed that opportunities to obtain monopoly profits will attract resources into efforts to obtain monopolies (see Gordon Tullock; Anne Krueger; Richard Posner). The major message of this literature is that traditional analysis and empirical estimates of the welfare losses from monopoly (see Arnold Harberger; David Schwartzman, 1960; David Kamerschen) may very substantially understate the total magnitude of these losses. However, the behavior underlying the tendency for monopoly rents to be transformed into genuine social costs- activity-has additional relevance for analysis of public vs. private enterprise. The presence of rent-seeking behavior results in predictable and important differences in the conduct and performance of public vs. private enterprise that are unexplained by the present property rights theory of the firm. While distinctions between public and private enterprise have been raised in the property rights literature, there remains no unambiguous prediction that privately owned firms will perform differently than public firms in a number of industries.' Indeed, there are at least two often-cited arguments which predict (particularly for utilities) that the conduct of firms in these two respective ownership categories will be similar. In this paper we argue that the bases of these apparent similarities between public and private enterprise are inapplicable in a rentseeking environment, and that the introduction of this framework enhances the explanatory power of the property rights approach. In Section I we briefly review the key arguments and offer in Section II an alternative characterization of public vs. private firm behavior in a world of rent seeking. In light of the implications of our analysis, Section III offers two types of empirical evidence on the contrasting incentives in public vs. private utilities. Specifically, we first compare the respective rewards structures for managers in publicly and privately owned water utilities in the United States. Second, we examine the impact of efficiency in private utility operation on rates of return subsequently allowed in formal rate hearings, under differing rent-seeking environments. Finally, Section IV offers some concluding remarks and discusses the relevance of our analysis for the welfare costs of monopoly.
Publication Year: 1980
Publication Date: 1980-09-01
Language: en
Type: article
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Cited By Count: 19
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