How to win the political contest: A monopolist vs. environmentalists

This paper sheds light on the political economy of local energypolitics both from a theoretical and an empirical perspective.First, a case study of a small town in Southern Germany(Schönau) is presented, where environmentalists have won thepolitical contest against the regional energy monopolist and havefounded an energy supply firm themselves. The different stagesof the political process are explained and analysed. Second, apolitical economy model is developed, where environmentalists anda monopolistic utility firm confront each other both on thepolitical and on the energy market. In the lobbying equilibriumthe probability of the environmentalists' winning the gamedepends on the monopoly rent and the perceived social costs ofenergy production. It is shown that it is optimal for themonopolist to reduce his output below the monopolistic output.Finally, the winning strategy in the Schönau case is discussedin the light of the theoretical results of the paper.     

Which Rectangle?: An Extension

This note examines the social cost of rent seeking when firmsseek rent by obtaining government subsidies as well as bysecuring a monopoly position. The social cost of rent seekingproves to be represented by the new Tullock rectangle.     

Constitutional Prohibitions in a Rent Seeking Model

I extend the standard rent seeking model to allow lobbying fora constitutional prohibition on wealth transfers. I examinetwo issues: (1) the ability of special interests withsignificant political capacity to block constitutional change;and (2) the effect of adding a constitutional stage on totallobbying expenditures. Defeating a prohibition on wealthtransfers is a public good for rent seekers; success inconstitutional politics merely allows them to lobby for wealthtransfers. The resulting collective action problem for rentseekers in constitutional politics offsets the generalinterest's free rider problems, reducing the probability oftransfers and expected total lobbying expenditures compared tothe traditional rent seeking contest. Introduction of aconstitutional stage also reverses several comparative staticsresults from the rent seeking game. An increase in the numberof rent seekers or the general interest's (consumers') abilityto organize increase lobbying in the rent seeking game butgenerally reduce expected lobbying in the constitutionalprohibition game.     

On the limits to rent-seeking waste

The general equilibrium framework developed in this paper for analyzing the limits to rent-seeking waste goes beyond the existing literature by incorporating tax-financed, public subsidies and rent-protecting activities into a rent-seeking environment. We show that the limits to rent-seeking waste depend on the extent to which government subsidizes rent seekers and rent defenders through tax-financed grants, contracts and favors. As observed by Tullock (1967), the diversion of resources toward efforts to acquire a monopoly rent causes a social waste in addition to the excess burden of monopoly pricing measured by the Harberger triangle. In the absence of government subsidies to rent-seeking and under competitive conditions, this additional waste cannot exceed the maximum monopoly rent attainable. However, if government subsidizes expenditures on rent-seeking, then the additional waste can exceed the Tullock rectangle of monopoly rent and, in the limit, equal the economy's maximum potential social surplus.Rent avoidance expenditures reduce the rent to be captured and thus discourage rent-seeking. If rent avoidance is a relatively efficient mechanism for transferring consumer surplus to rent granters, then rent-seeking expenditures are displaced by less wasteful expenditures on rent defending. As a result, under competitive conditions, unsubsidized demand for private rent protection may be socially efficient. Nonetheless, the upper limit to rent-seeking waste depends on constitutionally determined maximum rates of public subsidies to rent-seeking and rent-avoidance activities.     

Consumer resistance and monopoly behavior under franchise contestability

The probability of a deregulation under anti-monopoly consumer lobby is generated at the Cournot-Nash equilibrium of a lobbying game which depends on the monopoly rent and the deadweight loss. This probability is increasing and convex in monopoly price. When the deregulation probability constraint is binding, the monopolist's price rises with the number of consumers, the competitive price and the given ceiling probability. The social cost of a monopoly under franchise contestability differs from the Posner measure.     

Book reviews

This paper considers the effect of rent-seeking on the welfare implications of price discrimination by a monopolist. It is shown that even when rent-seeking fully dissipates monopoly profits, it is possible for price discrimination to raise social welfare. Thus, the recognition that monopoly profits attract resource using, socially wasteful activities, does not necessarily negate price discrimination as a defence of monopoly.     

Social capital, lobbying and community-based interest groups

Recent discussions of social capital within the public choice literature have tended to focus on its role in solving collective action problems and promoting political accountability. Consequently, two areas of inquiry remain underexplored: (1) the role social capital plays in facilitating lobbying and rent seeking, and (2) the possibility that the availability of government resources can cause community-based groups to re-orient their stocks of social capital away from mutual assistance and toward lobbying and rent seeking. This article examines the relationship between social capital and lobbying in New Orleans??s post-Katrina recovery.     

Rent seeking and the welfare cost of trade barriers

This paper estimates the potential social cost of trade barriers using the Harberger and the Tullock/Posner approaches for a sample of U.S. food and tobacco manufacturing industries. In addition, it tests the relationship between the computed welfare losses and special-interest political activity (PAC contributions). If all rents were dissipated through rent seeking, the social cost of trade barriers would be about 12.5 percent of domestic consumption and would be particularly large for sugar and milk products where quotas are the main instrument of protection. Furthermore, the results indicate that welfare losses are positively associated with industry lobbying but the strength of such association is strongly dependent on industry concentration.     

X-efficiency,rent-seeking and social costs

This paper investigates shifts in cost functions of monopoly and regulated firms operating under conditions of X-inefficiency and rent-seeking behavior. We show that X-inefficiency and rent seeking have significantly different implications for economic welfare. Distinctions are drawn between pecuniary and real X-inefficiency and between sunk and continuing rent-seeking costs. In general, for a given cost shift rent-seeking behavior implies larger social costs than does X-inefficiency theory. However, cost shifts caused by either X-inefficiency or rent seeking are observationally equivalent. This implies empirically measured cost shifts cannot unambiguously be attributed to either cause.     

Rent seeking and rent setting with asymmetric effectiveness of lobbying

This paper provides a more general model of the determination of rent-seeking costs by combining the following features: endogenous rent determination, asymmetric effectiveness of contending agents in their lobbying efforts, and multiple periods. In doing so, the paper generalizes some aspects of the work of Applelbaum and Katz (1987), Rogerson (1982), Leininger (1992) and Kohli (1992). Some results obtained are: (i) in the short run, when the regulator's salary is higher than in an alternative occupation, both the per unit cost of rent-seeking and the total rent set by regulator are highest for the same value of the relative effectiveness parameter; (ii) in the long run, an increase in the effectiveness parameter leads to a reduction in the social costs of rent seeking; (iii) in a repeated game, the equilibrium rent is lower the higher is the regulator's discount factor.     

Monopoly,rent-seeking,and second best theory

In the context of a simple general equilibrium model, in which there is a profit-maximizing monopolist, we show that in general the introduction of rent-seeking does not restore the first best pricing rule for the undistorted industry. This result is in direct contrast to that obtained when one assumes that the monopolist follows a full cost pricing rule with a constant markup ratio. Furthermore, it still holds even if the full cost pricing rule is profit-maximizing. We also investigate the conditions under which the first best pricing rule is reinstated for the undistorted industry.     

The economic theory of rent seeking

Tullock’s concept of rent seeking was the first statement of a quantitative principle about the social costs of such activities as lobbying and favor seeking. As such, this part of Tullock’s legacy to modern economics is one of his most important contributions.     

A culture of rent seeking

Public Choice - Tullock [J Dev Econ 67(2):455–470, 1967] introduced the concept of rent seeking and highlighted the social costs associated with collecting and lobbying for or against...     

Improper Selection of High-Cost Producers in the Rent-Seeking Contest

The resources two rival businesses spend to raise their own chanceof getting a unique monopoly license are a cost of rent-seeking.When those businesses differ in the costs of producing themonopoly good there is an additional cost of rent-seeking that hasnot been sufficiently studied in the literature. If the high cost producer winsthe license, the difference between his cost and the costs of hismore efficient rival is a social loss from improper selection ofproducers by the political process. The loss becomes more severewhen the ability to lobby of the inefficient producer outstripsthat of the efficient producer. This may help to explain whyspecialized lobbying evolved. Specialized lobbying reduces thesocial cost from improper selection of firms by allowing efficientproducers to hire expert rent-seekers and so to raise theirchances of gaining monopoly concessions.     

Public choice and tort reform

The common law originally was thought to be immune to rent seeking. More recently, scholars have recognized that attorneys are engaged in exactly that activity. Rent seeking by the legal profession has greatly expanded the scope of US tort law, and generated efforts to reverse its expansion. Organized groups (attorneys, businesses and doctors) are active on both sides of the issue and the partisans have numerous tools available for advancing their agendas, such as litigating, lobbying for favorable rules and attempting to elect sympathetic legislators and judges. All of this creates an ideal setting for public choice analysis.     

Targeting the lobbying effort: The importance of local government lobbying

Abstract Local government is subject to extensive lobbying, which is reasonable given the greater importance of the local public sector in large welfare states. Most of the scholarly attention has been focused on lobbying at the national level, often addressing the impact of interest groups on public policies. This article discusses a decision–making model where interest groups optimize their lobbying efforts given the way that different local governments and individual politicians respond to these activities. A number of propositions are tested on the basis of data from Norwegian local government. Contrary to prior theorizing, we do not find that representatives seeking re–election are contacted more frequently by interest groups. Interest groups target their lobbying activities toward politicians who are members of the relevant council committees, and they exert stronger pressure on members of the executive board and active representatives who perceive themselves as influential. Inter–municipal differences are also of importance: The lobbying activities are more intensive where electoral participation is low and in the larger urban municipalities, while the size of legislatures and the strength of the local political leadership affect lobbying efforts negatively. Interest groups tend to be more active in the richer local governments. The demands of the residential population impact weakly on lobbying efforts.     

Targeting the lobbying effort: The importance of local government lobbying

Local government is subject to extensive lobbying, which is reasonable given the greater importance of the local public sector in large welfare states. Most of the scholarly attention has been focused on lobbying at the national level, often addressing the impact of interest groups on public policies. This article discusses a decision–making model where interest groups optimize their lobbying efforts given the way that different local governments and individual politicians respond to these activities. A number of propositions are tested on the basis of data from Norwegian local government. Contrary to prior theorizing, we do not find that representatives seeking re–election are contacted more frequently by interest groups. Interest groups target their lobbying activities toward politicians who are members of the relevant council committees, and they exert stronger pressure on members of the executive board and active representatives who perceive themselves as influential. Inter–municipal differences are also of importance: The lobbying activities are more intensive where electoral participation is low and in the larger urban municipalities, while the size of legislatures and the strength of the local political leadership affect lobbying efforts negatively. Interest groups tend to be more active in the richer local governments. The demands of the residential population impact weakly on lobbying efforts.     

Cultural institutions and value formation on the art market: A rent-seeking approach

The formation of value in the artistic market can be specifically affected by the behavior of cultural institutions, acting on it as monopolistic quality certifiers. The rent-maximizing strategy limits quantities to sub-optimum levels and keeps prices and costs higher. This can be worsened by institutional rent-seeking. The establishment's strategies cannot always be matched through public policies, because this can result in an increase of monopoly social losses and of the establishment's lobbying efforts.     

Monopoly rent seeking under conditions of uncertainty

In recent years, economists have come to recognize that the competition to obtain monopoly rents, i.e., rent seeking, may consume resources whose value greatly exceeds that associated with traditionally measured deadweight welfare loss triangles (Tollison, 1982). Early articles by Tullock (1967), Krueger (1974), and Posner (1975) all concluded that this competition would exactly dissipate the rents sought. Later articles by Tullock (1980) and Baysinger and Tollison (1980) modified that original conclusion. The present paper develops a model which raises further doubts about the complete transformation of rents into costs. The emphasis of the analytical framework presented is on the implications of the fact that rent seekers may typically be uncertain about being able to maintain a monopoly position even if they are initially successful in attaining one. It is demonstrated that when there is even a moderate level of uncertainty about retention, the likely effect will be a relatively large reduction in the magnitude of resources invested in rent seeking activities. In addition, it is shown that the size of this waste of resources depends somewhat on the extent to which rent seeking opportunities involve once and for all transfers as opposed to flows of rents. Finally, in those cases where a flow of rents is at stake, it is shown that considerable social waste might be eliminated through institutional changes which would reduce the subjective probabilities of potential monopolists retaining their rent streams once attained.     

Competitive-share group formation in rent-seeking contests

We examine the possibility of forming a competitive-share group in rent-seeking contests. The competitive-share group has the following characteristics: (a) the group is treated as a single player competing with the nonmembers to win the rent, (b) the members choose their outlays noncooperatively, and (c) the members compete to take larger shares of the rent. We show that the competitive-share group is always formed voluntarily. One important consequence of such group formation is that rent dissipation is less relative to individual rent seeking — in other words, the social cost associated with rent seeking is less.