Deinonychus antirrhopus

Rent Seeking

This article is on the Fundamentals of Rent Seeking by Gordon Tulluck, one of the early pioneers who researched the use of political power for economic gain.

In the linked article Tullock discusses his first paper on this that looks are rent seeking in terms of monopoly. One of he ways to secure monopoly profits is via government fiat. Tullock applied economic theory to the process of securing such monopoly rights. The idea is simple, a firm will expend resources to secure such a benefit until the (discounted) marginal cost is equal to the (discounted) marginal return. If this is true the the social loss due to monopoly is not just the deadweight loss, but may also includes the economic profits.

Initially Tullock met a great deal of resisitance from economists when he first put forward this notion (1967). At that time it was widely viewed that through economic theory the government could exercise a great deal of control over the economy for the welfare of its citizens. Of course, now this view is no longer in such a dominant position.

Even if the rich were disposed to have the government take their wealth and redistribute it to the poor, it seemed clear to me that such a process would be vulnerable to moral hazard. Potential recipients would be well-advised to become suitable objects for charity. When stationed in China with the US Department of State, I would see many beggars who had deliberately and horribly disfigured themselves in order to beg successfully. Even though I often felt disposed to supply the charity that they sought, I did so at a considerable negative utility to myself.

The problem worsens sharply once government replaces private individuals in the charitable process. There is no obvious reason why governments driven by a vote motive should stop at the point where the utility of the rich is maximized. Much more likely is the outcome where the median voters coercively transfer, at no cost to themselves, a large part of the wealth of the rich to the poor, or where special interest groups access the political process to transfer the wealth of consumers to their own members.

This is an interesting argument. It points out how the decision for redistribution is one that rests with the (median) voter and not with the people who actually have the money.

Further, there is no assurance of economic efficiency here either. The assumptions under the median voter theorem that the results be efficient are rather stringent, such that the distrubtion of preferences is such that the mean and median coincide.

Anyhow, the entire article is worth a read as it lays out some of the early history of the development of the rent-seeking literature. While this literature and many of the researchers are considered to be "conservative" this characterization, I think, is misleading. The authors are probably more accurately characterized by a wariness for political power and its ability to disrupt markets, even markets that are lacking in externalities or other issues that can necessitate government intervention. It is in a sense, an economic version of the liberal slogan, "Question Authority". You hear it all the time from liberals when it comes to issues such as foreign policy, but almost never when it comes to economics. For many liberals, the government is often the first and only choice for solving many problems, and never mind that the government can often be a source and/or contributing factor to a problem (see for example the California electricity crisis).