Demand Revealing, Transfers, and Rent-Seeking
A recurring objection to the demand revealing process is that the Clarke tax it entails is apt to be very high when the interests of the parties are strictly opposed. Thus it has often been said that it doesn’t work very well for transfers.2 The point of this article is to argue Clarke taxes would be high only where rent-seeking would be likely. This high Clarke tax in many rent-seeking situations is a positive advantage, as it prevents transfers with no social value.
KeywordsDemand Curve Administrative Cost Social Optimum Simple Majority Vote Administrative Rule
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- 1.The author benefitted from very helpful comments by T. Nicholas Tideman and Ed Clarke.Google Scholar
- 2.Mainly this has been part of the oral discussion, but see “Revealing The Demand For Tansfers” in Richard D. Auster (ed), American Re-evolution, Papers And Proceedings ( Tucson: University of Arizona 1977 ), pp. 107–23.Google Scholar
- 3.In this example, and in all others in this article, we will assume that the amount is a continous variable. Adjustment of the models to deal with discontinous outcomes is simple.Google Scholar
- 4.This same result can be obtained by two other ways. We could assume that the transfer is intrinsically inefficient as all farm transfer programs in fact are, with the result that the line BB lies much farther below CC than it does in figure 1. Secondly, we could assume probably correctly, that the donors of this gift not only do not want to pay their taxes at the value of those taxes, but actually were somewhat annoyed by the whole procedure. Under these circumstances their demand curve, instead of lying along the horizontal axis would lie somewhat below it and when we summed the demand curves line BB would be once again moved down.Google Scholar
- 5.The system is even more complicated than that. The bulk of the tax subsidy is used to fund the price support program.Google Scholar
- 6.Or any other way which insures that only pareto optimal decisions are made.Google Scholar
- 7.See “A New And Superior Process for Making Social Decisions”, T Nicholas Tideman and Gordon Tullock Journal of Political Economy (October 1) pp. 225–73.Google Scholar
- 8.Law And Public Opinion In England, A. V. Dicey, London, Macmillan, 1962 p. xxxv.Google Scholar
- 9.This subject is discussed at great length in my, The Economics of income Redistribution, Gordon Tullock, Kluwer-Nijhoff, Boston, 1983.Google Scholar