Chapter 9: Rent Seeking
In the last chapter we noticed that transfers of income to do not always go to the poor. In fact most of them do not. The externality inﬂicted by people who are in trouble may lead to our granting them funds or other assistance. But the amount we give cannot be explained solely by that particular externality. There is another explanation, which is simply that people use their votes or other political means to obtain transfers to themselves. This is not simple and requires looking into a relatively new ﬁeld in economics, ‘rent seeking’. Since I was the one who ﬁrst discovered rent seeking, although not the title, which was introduced by Ann Krueger (1974), I am in a particularly good position to explain this. I will start with a simple straightforward explanation of what I might call the traditional view of rent seeking and then make some modiﬁcations, which are necessary for our current problem. Traditional economics textbooks explained monopolies with a ﬁgure like my Figure 9.1. There is a competitive price and the monopoly raises the price to the monopoly price shown on the ﬁgure. Traditionally the shaded triangle, A, C, B which shows the consumer surplus lost by people who would have purchased a product under the previous price and do not with the higher price. The rectangle between the competitive price and the monopoly price D, E, C, A shows the transfer of revenue from the purchasers to the monopolist. The traditional reasoning found...
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