Life Among the Triangles and Trapezoids: Notes on the Theory of Rent-Seeking
Some government programs and policies reduce wealth through rent creation. In this paper we focus on the theory of rent-seeking, and armed with an analytical model of the rent-seeking process, we make three basic points. First, we explain why perfect dissipation of rents is not equivalent to a competitive return to rent-seeking. Second, we demonstrate that the social cost of rent creation may be smaller when all rents are dissipated by rent-seeking than when no rents are dissipated. Third, we explain that regardless of whether rents are dissipated in transferring them, there is a distribution effect of rent-seeking that has been ignored in the literature.
KeywordsSocial Cost Expect Profit High Bidder Rent Seeker Downstream Producer
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