Rent Seeking and Market Competition

Huizhong Zhou

Public Choice, 1995, vol. 82, issue 3-4, 225-41

Abstract: This paper emphasizes that political behavior of interest groups is a result of economic calculation, and therefore is affected by the market conditions under which they operate. We develop a two-stage game to link political and market decision-making. We find that if unproductive rent-seeking directly contributes to rent-seekers' market operations, then their lobbying efforts will be excessive if the number of outsiders is relatively large, restrained if it is relatively small. If rent-seeking directly impairs rent-seekers' market operations, the above described behavior will be reversed. The analysis also reveals that as wasteful rent-seeking may increase rent-seeker's production cost, market competition shifts production from now less efficient rent-seekers to their non-rent-seeking rivals. Welfare gains from this shift may overshadow the direct waste of influence activities. Copyright 1995 by Kluwer Academic Publishers

Date: 1995
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