Rent-seeking, noncompensated transfers, and laws of succession: A property rights view

Abstract

The modern theory of rent-seeking begun by Tullock, advanced by Krueger and Posner, and since carried on by others1, has largely been developed with reference to competition for monopoly rents created by governmentally enforced barriers to competition. The fundamental insight of Tullock was simply that resources would be expended to obtain the wealth transfers anticipated to accrue to monopolists. Given the reasonable assumption that rent-seekers do not value acquisition expenditures per se, barriers to entry can be considered socially costly, not only because they limit exchange and the gains therefrom, but also because the anticipated transfer of wealth from consumers to producers is absorbed, partially or wholly, in their acquisition. Even if the monopoly rights were sold at open auction by government agents so that competitors for the monopoly position transfer any anticipted rents to these agents, rent-seeking continues. It continues in the competition to obtain these rents from the government because no individual has an indisputable claim on them. As is clearly indicated in the literature2 the term rent-seeking must be used with some caution since it can also refer to activity that is not considered socially undesirable. An entrepreneur can gain rents not only by obtaining artificial entry restrictions, but also, for example, by offering superior value via product innovation. With product innovation, imitation and entry ultimately eliminate rents; whereas, barriers bring the process of competition to a halt. The distinction that emerges between socially desirable and undesirable rent-seeking is that the latter seeks to obtain wealth without offering anything in return to the party who surrenders the wealth; that is, undesirable rent-seeking involves an uncompensated transfer of wealth. Given this distinction, Buchanan's3 extension of this line of analysis to private