Tuesday, May 24, 2011

Rent Seeking

Rent seeking is the act of seeking special privileges or protections from the government. These can come in the form subsidies or regulations that harm competitors but benefit special interests. A good description of rent seeking is given in the Fall 2004 article 'Public Choice Revolution' in the journal Regulation:

"Interest groups will engage in what public choice theorists call “rent seeking,” i.e., the search for redistributive benefits at the expense of others. The larger the state and the more benefits it can confer, the more rent-seeking will occur. The entire federal budget..can be viewed as a gigantic rent up for grabs for those who can exert the most political muscle. Rent seeking does not produce a pure transfer; when individuals or groups compete for some advantage from the state (e.g., a subsidy, a monopoly), they will all use real resources (e.g., ink, paper, travel, meals, time) in trying to grab it. As a result, part of the expected rent will be dissipated, creating a net social loss."

Many times, regulations that are cloaked with the impression of protecting the environment often turn out to provide special privileges to big business. Monsanto enjoys the protections of barriers to entry in the biotechnology sector.  Again from the journal Regulation:

'In the end, EPA and the USDA regulatory policies place federal bureaucrats in the middle of virtually all field trials of gene-spliced plants, spelling disaster for small businesses and academic institutions whose scientists lack the resources to comply with burdensome, expensive, unnecessary regulation. The cost of field-testing gene-spliced plants is as much as 20-fold higher than for virtually identical plants crafted with older, less precise genetic techniques.' -Regulation, Summer 2003

An application of rent seeking behavior can also be found looking back at the political climate prior to the failed vote on the proposed Markey-Waxman climate change bill (from the Washington Post):

"But as the legislation’s chances improve, corporations, environmentalists and other interest groups have worked to put their imprint on the bill. The Center for Public Integrity said its review of Senate disclosure records showed that more than 880 businesses and interest groups have registered to lobby on climate change in the first quarter of 2009 — up more than 14 percent over the same time last year."


The Washington Post June 5, 2009.
High-Stakes Quest for Permission to Pollute
Interest Groups Press Congress for Cap-and-Trade Allowances in Climate-Change Legislation

Henry Miller and Gregory Conko. 'Bootleggers and Biotechs.' Regulation. Summer 2003

Public Choice Revolution. Regulation, Fall 2004.