Abstract: So far in our analysis of rents, we have looked only at the implications of the rents themselves and not at the implications of the processes through which rents are created or maintained. In fact, since rents are, by definition, beneficial for the recipients, they are likely to spend resources to create, maintain, or transfer particular rents. Rent-seeking is the expenditure of resources and effort in creating, maintaining, or transferring rents. These expenditures can be legal, as with most forms of lobbying, queuing, or contributions to political parties. But they can also be illegal, as in the case of bribes, illegal political contributions, expenditures on private mafias, and so on. The processes are of tremendous significance because the resources they use up are a social cost, and they determine the types of rents which are created and maintained in a particular society. Conventional rent-seeking theory, however, assumes that rent-seeking only results in the creation or protection of monopoly rents, and in addition, it makes restrictive assumptions about how the rent-seeking cost is determined. Nevertheless, the contribution of this theory was to tell us that the cost of rent-seeking was an additio nal cost of maintaining a monopoly. However, the conventional rent-seeking framework has to be radically extended if it is to be relevant for the real world. Institutional economics and political economy both suggest directions in which the rent-seeking framework can be extended. First, we have seen that rents and the economic rights underpinning them are closely related. Rent-seeking is, therefore, closely related to processes of institutional change through which economic rights are altered. Institutional economics tells us that the outcomes of institutional change are far from straightforward, and can depend on a number of variables, including the incentives set by pre -existing institutions. Secondly, attempts to change the structure of rents can also unleash distributive conflicts. Political economy tells us that political variables, and in particular, the distribution of political power, can determine which individuals or groups are likely to win distributive contests. Thus, a more general approach to rent-seeking can incorporate political and institutional variables to explain first, how much effort is actually expended in rent-seeking, and secondly, the types of rights and rents which are created as a result. The modern interest in rent -seeking emerged from a few seminal articles written in the seventies (in particular, Krueger 1974; Posner 1975) which argued that the costs involved in seeking monopoly rents were much larger than the relatively small deadweight welfare losses associated with the monopoly rents themselves. Their purpose was to alert liberal economists that the social cost of monopolies artificially maintained by the state was much larger than conventional theory had established, since there was an additional rent-seeking cost associated with monopolies. While these early papers were limited in their assumptions, both about the types of rents and the types of rent -seeking, they offered a potentially fruitful way of thinking about
Publication Year: 2000
Publication Date: 2000-01-01
Language: en
Type: article
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