Another Look at the Problem of Rent Seeking

Abstract

The presence of rents in the economic system has been recognized at least since the work of David Ricardo. One of the modem manifestations of the idea of rents in the economy is the analysis of rent-seeking behavior on the part of actors in the political-economic sphere, a topic featured prominently in the literature of the neoclassical public choice school. The main thrust of neoclassical rent-seeking theory is that the government creates rents, economic actors expend resources in the pursuit of these rents, and that such expenditures are wasted from society's perspective. The purpose of this article is to analyze rent seeking and rent-seeking theory from an institutional perspective. In the first section of this article, we present an analysis of the economic role of government and present the neoclassical theory of rent seeking. The next two sections of the article deal with problems with the neoclassical approach, specifically the problems that attend the definition of waste and the fundamental inconsistencies in the theory of rent seeking. In the fourth section, we examine constitutional economics as a possible solution. The fifth section uses the insights gleaned from the preceding analysis to present elements of an institutional theory of rent seeking. The final section concludes the article.