RENT SEEKING: The Social Cost of Contestable Benefits

Contestable benefits or rents are of primary importance for the study of public finance and public policy. Rents are assigned through decisions about budgetary spending and taxation. Public policy creates and assigns rents through decisions about regulation of competition, international trade, the environment, foreign aid, and more. Contestable rents are also found outside of government, for example in academia, or when contests take place for mates. There is a social loss when resources and initiative used in contesting rents could have been used productively. Lack of data and denial by successful rent seekers that rent seeking took place are obstacles to direct measurement of social loss. Contest models are therefore used to infer magnitudes of social loss. The models show conditions under which the observable value of a rent can be used to approximate the generally unobservable value of resources used in contesting the rent. The generic contest model describes social losses when individuals seek a personal benefit. Social losses are diminished when, as is characteristic of democracies, groups contest collective benefits. Views on the importance of rent seeking can be influenced by ideology. Government as seeking to maximize social welfare is inconsistent with political creation of contestable rents that are assigned for privileged benefit.