A Model of Rent Seeking and Inequality

Mayuri Chaturvedi

No 202215, Working Papers from University of Liverpool, Department of Economics

Abstract: Social scientists have argued that inequality fosters rent seeking and that rent seeking is likely to reinforce existing inequalities. In this paper, I formalize these interactions by modelling rent seeking in an unequal endowment economy where agents can choose to be rentiers or not. I find that when the cost of rent seeking is exogenous, more inequality fosters a greater proportion of rentiers, which in turn further skews the distribution of resources. I endogenize the cost of rent seeking by assuming that the rentiers pay the cost to a central institution, which chooses the cost per rentier to maximize its revenue. In this setting, the revenue-optimizing cost of rent seeking per rentier increases with more inequality, which results in a lower proportion of rentiers. However, expost inequality still increases. The results show how economies can end up with persistent inequality in the presence of rent seeking.

Keywords: inequality; rent-seeking; property rights; institutions; corruption (search for similar items in EconPapers)
JEL-codes: D23 D31 D63 D72 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2022-07
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Forthcoming

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https://www.liverpool.ac.uk/media/livacuk/schoolof ... g,and,Inequality.pdf First version, 2022 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:liv:livedp:202215

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