Transitional gains and rent extraction

Randall Holcombe

Public Choice, 2019, vol. 181, issue 1, No 9, 127-139

Abstract: Abstract Tullock (Bell J Econ 6:671–678, 1975) described a transitional gains trap in which the present value of rents is capitalized in the value of an asset required to get the rents. Owners of the assets just earn a normal rate of return on their assets, despite the inefficient policies that produced the rents. The trap was that undoing the inefficient policy would impose a transitional loss on the owners of those assets. Tullock characterized the creation of transitional gains as a mistake, but combined with McChesney’s (J Leg Stud 16(1):101–118, 1987) rent extraction framework, the creation of transitional gains can be seen as a mechanism for rent extraction, not a mistake. Tullock (Bell J Econ 6:671–678, 1975) focuses on the value of assets required to obtain rents. Sometimes investment in those assets imposes a welfare loss on the economy, but the rent-seeking literature does not acknowledge that at other times it does not. Rent-seeking is typically not as economically costly as it appears to be in much of the rent-seeking literature.

Keywords: Rent-seeking; Transitional gains; Rent extraction; Public choice; Gordon Tullock (search for similar items in EconPapers)
JEL-codes: H11 L51 P16 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11127-018-0614-5

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