Abstract
Despite Gordon Tullock’s famous effort to motivate researchers to quantify investments in rent seeking, the empirical measurement of rent-seeking activity remains under-studied. This paper proposes a new estimate of rent seeking by comparing the industrial composition of MSAs that contain a state capital with those of a comparable synthetic match. Each of these synthetic matches are constructed as a weighted average of all MSAs that do not contain a state capital, where the weights are chosen via entropy balancing. This paper offers the first panel estimate of rent seeking in the United States by state and year for the years 2004–2020. We also provide the first industry-specific measures of rent seeking, in addition to aggregate indexes of traditional, in-kind, indirect, and total rent seeking. All measures of rent seeking described in this paper have been made publicly available.
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Notes
For a more detailed discussion of the theoretical properties and numerical implementation of the entropy balancing method, see Hainmueller (2012).
Another measure of industry structure that might correlate well with revenue within an industry is employment per capita. Unfortunately, employment counts for some industries are not available publicly. While all measures of rent seeking within this paper therefore use establishments per capita as the measure of industry structure, we also provide similarly constructed rent seeking measures but using employment per capita (based on all available data) at https://www.rentseekingdata.com.
We use the share of total establishments in each synthetic capital MSA, as opposed to in each actual capital MSA, to avoid over-estimating rent seeking activity. The number of establishments in each capital MSA is likely determined in part by rent seeking activity itself. In contrast, the number of establishments in each synthetic capital MSA should not be determined by rent seeking activity, since each synthetic capital MSA is a weighted average of non-capital MSAs.
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We thank participants of the Public Choice Society 2022 Annual Meeting and participants of the Harold Black Conference in 2022 for helpful comments. All remaining errors are ours.
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Melo, V., Neilson, E. Introducing an index of rent seeking: a synthetic matching approach. Public Choice 197, 471–487 (2023). https://doi.org/10.1007/s11127-023-01083-8
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DOI: https://doi.org/10.1007/s11127-023-01083-8