Rent Seeking - Good or Bad ?

#corruptionlaw  #CorruptionEconomics #IEFbygirindra

This post was previously published in earlier blog of this Investment Economics Foundation:

Many government policies, such as import licenses in developing nations, create rents for some market participants. While the presence of such rents and the distortions that they create have long been noted, this paper recognized the importance of “rent-seeking behavior” and explored its welfare implications. The paper’s central finding is that competitive rent-seeking increases the welfare costs of policies such as trade restrictions. In the context of import restrictions, this result strengthens the case for the use of tariffs rather than import quotas, since quotas create the possibility of rent-seeking behavior. By identifying the importance of rent-seeking activities and providing a framework for analyzing their welfare costs, this paper expanded the economic analysis of the government’s choice of policy instrument to achieve particular goals. It also helped to launch a voluminous literature on the role of corruption and governance in the process of economic development.  

Taken from : http://pubs.aeaweb.org/doi/pdfplus/10.1257/aer.101.1.1

Krueger, Anne O. 1974. “The Political Economy of the Rent-Seeking Society.” American Economic Review, 64(3): 291–303. (http://www.aeaweb.org/aer/top20/64.3.291-303.pdf)

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