THE EMPIRICAL MEASUREMENT OF RENT-SEEKING COSTS

Abstract

This survey focuses on the efforts, carried out mainly by public choice scholars, to measure the social cost of rent seeking. The concept, introduced by Gordon Tullock in 1967 and coined by Anne Krueger in 1974, is well known and accepted by the profession, but its empirical measurement has fallen behind with respect to its theoretical formulation, an often criticized lack in the literature. Although there are good general surveys, none has specifically focused on reviewing the empirical efforts made to measure the phenomenon. The purpose of this paper is to provide such a survey. It could be said that the rent-seeking concept has been fully integrated into economic jargon. It is commonly used when some agent seeks to obtain an artificial transfer, usually from government, and covers all the actions, efforts or expenses that the agent has to carry out to obtain the prize. The key issue, however, is the possible social waste that arises in these situations. The empirical efforts to measure such waste constitute the main purpose of this survey. The concept of rent seeking was introduced by Tullock (1967), although the term was first coined by Krueger (1974) in a paper not related to the former. In a recent paper, Tullock himself wrote of the history of the concept and the intellectual context within which it arose (Tullock, 2003). Starting with the pioneering work by Harberger (1954), several studies were conducted during the 1950s in which the calculation of the social cost of monopolies and tariffs always gave the result of very modest figures. The first response to these results was made by Leibenstein (1966) and his 'X-efficiency', which refers to a hypothetical loss in efficiency due to the absence of competition. Shortly after Leibenstein's paper appeared, Tullock argued that the deadweight costs of monopoly and tariffs understate the true social cost because the expenditures made to capture related rents have to be included; so rectangles as well as Harberger's triangles have to be included in the calculations. Let us see this argument once more. Figure 1 depicts the iconic Tullock graphic analysis of rent seeking. It represents the demand schedule (D) for a monopolized good, where Pm is the monopoly