Are rents fully dissipated? Comment

Abstract

The measure of the cost of rent-seeking has been difficult and its theory is complicated. For example, I devoted to the first half of my The Economics of Special Privilege and Rent Seeking (1992) to the mysterious fact that the apparent size of the rent-seeking industry is considerably smaller than the resources obtained. This raises the question of whether there are, in fact, concealed expenses or that entrepreneurs are making mistakes. The Dougan-Snyder (1993) article raises and attempts to answer the problem. They assume a case in which $100 is distributed to the first 1000 people who are at a given point at noon of a specified day. One would expect that this prize would be wholly dissipated by people coming long distances, getting in early in the morning, etc. They call this rent-seeking, and it is legitimate, although unusual, use of the word.' There is another set of rent-seeking costs. These are costs of impelling the decision or policy makers to make the award. It is this second meaning of the term that attracts most attention from students. To repeat, it is not illegitimate of Dougan-Snyder to talk about the first meaning, but they should not ignore the second. In their model the decision maker simply decides to make a gift to certain people. There is no pressure brought to bear on him; resources are not used to convince him that he should. Altogether, this is quite unlike what we normally see when Congress is handing out money. I am not alleging that waste in the process of handing out the money is unimportant. However, the pressure brought to bear on policy makers to make the distribution is what has normally been discussed under the title of rent-seeking. Take the U.S. agricultural program which provides benefits to the farmers at a cost to society very much larger than those benefits. The benefits themselves are modest even to the farmers. The farmers bring a good deal of pressure to bear on the political representatives to keep the program going, and this is what we normally think of as rent-seeking costs, and not the allocative inefficiency waste that the program generates. However, Dougan and Snyder perform a service by bringing these allocative wastes to our attention. The cost to the United States of the farm program is of the order of $20-