Costly distribution and the non-equivalence of tariffs and quotas

When governments impose a quota or tariff on imports, it is well known that the resulting rents and revenues trigger costly rent-seeking and revenue-seeking activities, which are welfare-reducing and may be economically more significant than the efficiency losses resulting from the protectionist-induced resource misallocation. Repeated interaction among firms can eliminate wasteful rent- and revenue-seeking expenditures through cooperation. We show that while aggregate outcomes are equivalent under tariffs and quotas if cooperation arises, the conditions under which cooperation arises differ by policy. This difference arises because a firm must incur additional cost to physically import and distribute the goods associated with additional quota licenses, whereas there is no such cost when it comes to consuming additional tariff revenue. Thus, quotas and tariffs are non-equivalent. We provide a simple sufficient condition under which cooperative elimination of rent-seeking under quotas is easier than cooperative elimination of revenue-seeking under tariffs and therefore a quota is the preferred policy whenever the policy admits cooperation.     

Conflict and rent-seeking success functions: Ratio vs. difference models of relative success

The rent-seeking competitions studied by economists fall within a much broader category of conflict interactions that also includes military combats, election campaigns, industrial disputes, lawsuits, and sibling rivalries. In the rent-seeking literature, each party's success p_i (which can be interpreted either as the probability of victory or as the proportion of the prize won) has usually been taken to be a function of the ratio of the respective resource commitments. Alternatively, however, p_i may instead be a function of the difference between the parties' commitments to the contest. The Contest Success Function (CSF) for the difference from is a logistic curve in which, as is consistent with military experience, increasing returns apply up to an inflection point at equal resource commitments. A crucial flaw of the traditional ratio model is that neither onesided submission nor two-sided peace between the parties can ever occur as a Cournot equilibrium. In contrast, both of these outcomes are entirely consistent with a model in which success is a function of the difference between the parties' resource commitments.In preparing successive drafts of this paper I have benefited from suggestions and comments from Michele Boldrin, Avinash Dixit, Arye L. Hillman, David Hirshleifer, Eric S. Maskin, David Levine, Eric Rasmusen, John G. Riley, Russell Roberts, and Leo K. Simon.     

The political economy of distribution in developing countries: A rent-seeking approach

Economic development in many Third World countries after independence has been biased in the sense that some, mainly urban, social groups have gained much more than the majority of the population who lives in rural areas or urban shantytowns. That bias is to a large extent caused by government policy and, accordingly, by an uneven distribution of political influence. This paper contains an analytical model reflecting the bias in the distribution of the benefits and costs of public sector activities, where those activities are determined by the distribution of political influence. The main elements of the distribution of political influence are determined in a rent-seeking game between society' different social groups.     

Perestroika and public choice: The economics of autocratic succession in a rent-seeking society

An earlier version of this paper was presented at the Public Choice Society Meetings, Tucson, AZ, March 1990, and at the Austrian Economics Colloquium at New York University, September 1990. We would like to thank the participants at our session, and those at the Colloquium, for their comments and criticisms. In addition, Hal Hochman, Israel Kirzner, Mario Rizzo, Charles Rowley, Robert Tollison, Gordon Tullock, and an anonymous referee provided useful comments and criticisms. The usual caveat applies.     

Soviet venality: A rent-seeking model of the communist state

While the recent Fall of Communism has focused the interest of economists on the admittedly fascinating problems associated with the ongoing economic reform process, the study of the functioning of actual communist economies still seems mired in the conventional model of central planning. This model is predicated on the assumption that communist rulers are unselfish drones who single-mindedly maximize the public interest. Our article proposes an alternative, public choice model. We suggest that the Soviet-style system represents a modern incarnation of the mercantilist economies of sixteenth- and seventeenth-century Europe, and that venality, not ideology, drives these economies in practice.     

The number of rent-seekers and aggregate rent-seeking expenditures: An unpleasant result

I examine a rent-seeking contest in which the winner gets a minimum rent but also gets an additional rent which is an increasing function of his lobbying expenditure. I give real-world examples of such rent-seeking competitions. Contrary to the standard result in the rent-seeking literature, I obtain the perverse result that aggregate rent-seeking expenditures may be inversely related to the number of rent-seekers. However, I note that even if this result holds, the cost of administering rent-seeking competitions may imply that society is better off with fewer contenders than with an infinitely large number of contenders, although the optimal number may not be the smallest number.     

The effect of predatory rent-seeking on household saving and portfolio choices: A cross section analysis

The existence of predatory behavior, when measured by the number of lawyers per capita and the crime rate, seems to have an impact on saving and investment behavior in U.S. households. Where the risk of redistribution are lowest, the incentives to save are higher and, a fortiriori, the willingness to invest in highly vulnerable financial instruments is enhanced. Either because of low saving rates or because of disintermediation, households in states where the risks of redistribution are greater avoid accumulating financial assets.Recent years have seen a considerable decline in the U.S. saving rate. There is also evidence of large differences in saving rates from one country to another, with U.S. households among the lowest savers. Yet not all of these variations have been explained satisfactorily in empirical studies based on conventional theory. Perhaps one explanation which has been inadequately studied is the reduced expected retirement time horizon whether it be due to objective conditions such as retirement age and life expectancy or to uncertainty. Some reasons for myopic planning horizons are macroeconomic instability (McCauley and Zimer, 1989), the possibility of nuclear war (Slemrod, 1982, 1986 and 1989); Henderschott and Peek, 1985 and 1987); and the fear of socio-political conflict (Stewart and Venieris, 1985). I have suggested and tested here yet another factor: the fear of future redistribution. Using differences in interest income across U.S. states, this paper shows that fear of redistribution does seem to have a large influence on saving behavior.     

The design of rent-seeking competitions: Committees,preliminary and final contests

The paper examines the common practice in multi-contest rent- seeking competitions, where “finalists” are selected, based on rent-seekers' efforts in a preliminary contest. We find that for any single-contest design, rent-seeking expenditures could be reduced by introducing a preliminary contest, if the marginal returns to rent- seeking effort in the preliminary contest is sufficiently low. In addition to other reasons, the paper argues that this may explain why such multi-contest designs are common. We argue that rent-seeking expenditure in the preliminary stage represents the cost of reducing the number of contestants. We also find that the practice of setting a higher “quality” standard in the final contest than the “quality” standard in the preliminary contest reduces rent-seeking waste. We derive an expression for the optimal number of finalists; under certain conditions we find that the optimal number of finalists is directly proportional or equal to the square root of the number of potential contestants. Finally, we show that whether rent-seeking expenditures rise or fall when the rent is awarded by a committee instead of a single administrator depends on the sensitivity of the committee relative to that of the single administrator.     

Gender quotas,candidate background and the election of women: A paradox of gender quotas in open-list proportional representation systems

We study the effects of mandatory (legislated) gender quotas in Poland, a country utilising an open-list proportional representation electoral system. We use a unique data set comprising multiple characteristics of all candidates running in two consecutive elections to the lower chamber of the Polish parliament (the Sejm). The first of them (held in 2007) was the last pre-quota election and the second (held in 2011) the first post-quota one. We show that quotas have an inherently paradoxical nature: they cause a substantial increase in the number of female candidates but the increase is accompanied by a sharp decline in women's electoral performance. This regularity holds even if we account for multiple indicators of candidate background, including previous political experience.     

The Europeanisation of conflict: Reflections from a social movement perspective

If Europe is becoming a polity, then regular patterns of social and political conflict ‐ both institutional and non‐institutional ‐ will emerge between citizen groups and decision‐making authorities. Although we are beginning to have a substantial body of research on institutionalised interest group interaction at the European level, we know much less about non‐institutionalised forms of contentious collective action that have European policies as their targets. Using social movement theory, several varieties of such collective action can be identified. Based on the theory of political opportunity structure, it is shown why one of these forms ‐ actions intended to bring national states’ power to bear against European policies — appears to have a rich and turbulent future.     

A comparison of rent-seeking models and economic models of conflict

This paper provides a comparative analysis of the basic rent-seeking model and a simple economic model of conflict. Each model is concerned with a game in which players invest resources in pursuit of a prize. The purpose of the analysis is to elucidate structural differences between the two models, and to analyse the consequent behavioral differences and equilibrium outcomes in the two cases. A key finding is that, where such comparisons are possible, the conflict model tends to involve greater relative expenditure on wealth-redistribution activities than does the rent-seeking model.     

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.     

The effect of rent-seeking on family income levels: Some suggestive empirical evidence

The comments of Jason Shogren, Pat Gaynor and Gordon Tullock on an earlier version of this paper are gratefully acknowledged, as is the typing assistance provided by Deborah Culler. I am responsible for any errors or omissions.