In this paper we present a formal analysis of rent-seeking for public goods by two or more groups with different numbers of individuals. We begin by considering equally wealthy groups under risk neutrality, a case which constitutes our basic model. Several surprising and interesting results emerge from the analysis of this basic case. The problem is then extended to deal with (a) groups with different wealth levels, and (b) risk aversion. This last extension brings about a further crop of interesting and useful results.
KeywordsPublic Good Risk Aversion Free Rider Vote Power Absolute Risk Aversion
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- 1.See Hillman and Katz (1984).Google Scholar
- 2.See Corcoran and Karels (1985), Appelbaum and Katz (1986).Google Scholar
- 3.See Appelbaum and Katz (1987).Google Scholar
- 4.See, for example, Bhagwati and Srinivasan (1982).Google Scholar
- 5.See Katz and Smith (1987).Google Scholar
- 6.See, however, Long and Vousden (1987), who do touch upon this issue, albeit in a totally different way.Google Scholar
- 7.In order to be able to focus on the rent-seeking activity for the pollution clean-up, we ignore here the source of the funds with which the clean-up will be financed. In doing this, we ignore the rent-avoiding activity done by those from whom the funds were collected in the first place. This can be justified either (1) by assuming that the money is already available and sunk rent-seeking does not matter now, or, (2) by assuming that the funds are collected all over the economy/municipality such that the many diffuse individuals which might oppose it, find the sum too small to bother with it. (On the effect of including rent avoidance in measuring waste see Appelbaum and Katz, 1986.)Google Scholar
- 8.Notice that the issue of the voting power of the two locations does not have any effect in this model. This is not because we think that the interaction of voting and rent-seeking is unimportant. Indeed, it is a topic of major importance which might alter many rent-seeking results. The reason for its omission here is that we feel that in an exploratory paper on a relatively new topic (rent-seeking and public goods) the basic issue of rent-seeking ought to be focused on. On a formal level, the fact that voting is not incorporated into the model may be justified by assuming that the two populations of the locations affected by the potential pollution clean-up are small relation to the population of the municipality as a whole. Hence, the voting power of the populations contesting the pollution clean-up can be effectively ignored. Alternatively, even if n + m is large, then providing n and m are close, the maximum loss in votes from these two locations will be a small n − m even if voters in the two locations vote solely on the basis of the pollution clean-up decision. Finally, given our finding of the smallness of the amount of rent-seeking done by the public for a public good, does suggest that voting rather than rent-seeking may be a more likely motivation for governments (central and local) to offer public goods.Google Scholar