Improper Selection of High-Cost Producers in the Rent-Seeking Contest

Abstract

The resources two rival businesses spend to raise their own chanceof getting a unique monopoly license are a cost of rent-seeking.When those businesses differ in the costs of producing themonopoly good there is an additional cost of rent-seeking that hasnot been sufficiently studied in the literature. If the high cost producer winsthe license, the difference between his cost and the costs of hismore efficient rival is a social loss from improper selection ofproducers by the political process. The loss becomes more severewhen the ability to lobby of the inefficient producer outstripsthat of the efficient producer. This may help to explain whyspecialized lobbying evolved. Specialized lobbying reduces thesocial cost from improper selection of firms by allowing efficientproducers to hire expert rent-seekers and so to raise theirchances of gaining monopoly concessions.