Long-Run Equilibrium and Total Expenditures in Rent-Seeking

  • William J. Corcoran
Chapter
Part of the Topics in Regulatory Economics and Policy book series (TREP, volume 1)

Abstract

How important rent-seeking is as a part of the total monopolistic waste hinges on the size of the total expenditures induced by a given level of excess profits.1 Posner (1975) and Becker (1968) assert that total expenditures in the rent-seeking process will just equal the value of the rents to be gained although neither is specific about how this result would occur. This hypothesis has been adopted by those writing about rent-seeking and, more recently, it appears to have attained the status of an axiom (Foster, 1981). If rent-seeking could fit within the perfectly competitive model one would expect—in the long run—the equality of total expenditures and total revenues. The analogy with perfect competition, however, is not accurate. One difference is that the expenditures in rent-seeking are made to influence the probability of winning, not to cover the cost of production. Another is that in the case of one payoff only one competitor wins and obtains a positive return on his investment, the rest lose everything. Tullock (1980) shows that in a simple two-player lottery each player will maximize his expected value by investing one-quarter of the payoff at stake, not one-half, where total expenditures would equal the payoff. He goes on to show that the total expenditures can be greater, equal, or less than the payoff; the result depends upon the number of players and the marginal cost of influencing the probability of winning. Thus, it cannot be assumed, as first thought, that a given rental payoff will give rise to wasteful expenditures of equal value.

Keywords

Marginal Cost Total Expenditure Competitive Model Perfect Competition Excess Profit 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Becker, G.S. “Crime and punishment: An economic approach.” Journal of Political Economy 76 (March—April, 1968): 169–217.Google Scholar
  2. Foster, E. “The Treatment of Rents in Cost-benefit Analysis.” American Economic Review 71 (March, 1981): 171–78.Google Scholar
  3. McNulty, D.J. “Economic Theory and the Meaning of Competition.” QJE 82(November, 1968): 639–56.Google Scholar
  4. Posner, R. A. “The Social Cost of Monopoly and Regulation.” Journal of Political Economy 83 (1975): 807–827.CrossRefGoogle Scholar
  5. Tullock, G. “The Welfare Cost of Tariffs, Monopolies, and Theft.” Western Economic Journal 5 (June, 1967 ): 224–232.Google Scholar
  6. Tullock, G. “Efficient Rent-seeking.” In: J.M. Buchanan, R.D. Tollison, and G. Tullock (eds.), Towards a Theory of Rent-seeking Society. College Station: Texas AM University Press, 1980.Google Scholar
  7. Varian, H.R. Microeconomic Analysis. New York: Norton, 1978.Google Scholar

Copyright information

© Springer Science+Business Media New York 1988

Authors and Affiliations

  • William J. Corcoran

There are no affiliations available

Personalised recommendations