Tuesday, August 26, 2008

The Father of Rent Seeking Retires

I have just learned that the "father of rent seeking," 86-year-old Gordon Tullock, professor of economics and law at George Mason, suddenly decided a couple of weeks ago to retire, and has done so, moving to Arizona to live with his sister. Many readers and contributors to this blog probably do not think much of Tullock, given his quite strongly pro-free market orientation. However, he has been one of the more interesting characters in economics in recent years, who has arguably not received his proper due. In particular, James Buchanan received the Nobel Prize about 20 years ago for discovering/inventing public choice theory, with his 1960 book, _The Calculus of Consent_, being the source for this that was cited. There was a minor problem: Gordon Tullock was coauthor of that book and did not share the prize, although he was the founder and longtime editor of the journal Public Choice. (Rumor has it that the Nobel Committee had Richard Musgrave in mind to share it with Buchanan, but never gave it to him, and he is now dead, with Tullock somehow not even on their radar screen. Probably all three should have shared it, although many here probably think that neither Buchanan nor Tullock deserve(d) it).

Tullock may still get the prize, and has been high on some betting pools in recent years. He would get it for his discovery/invention of the concept of "rent seeking," although Anne Krueger invented the term some years later. Concern with corruption might lead to an award for this idea, that interest groups get governments to create artificial monopolies that create scarcity rents that can often get taken by those interest groups, often through bribery or corruption. Tullock's original paper on the matter was "The welfare costs of tariffs, monopolies, and theft," Western Economic Journal (now Economic Inquiry), 1967, 5: 224-232. I also note that some think he will not get the prize because he is very curmudgeonly, long showing his respect for somebody by insulting them. If he did not think much of someone, he simply ignores them.

6 comments:

kevin quinn said...

I guess I had always thought that Tullock got the prize along with Buchanan. This is odd. The Calculus of Consent is a brilliant book, I have always thought. On rent-seeking: the idea that a government is always involved seems to me limiting. Natural monopolies can be the focus of rent-seeking as well, making the Harberger triangle a wild under-estimate of the deadweight loss.

rosserjb@jmu.edu said...

Kevin,

Well, according to the textbook analysis, the Harberger triangle is the deadweight loss. The Tullock triangle is a redistribution from consumers (or the general public) to those obtaining the rents, whether through their own exercise of private monopoly power or through the rent seeking mechanism laid out by Tullock.

kevin quinn said...

Barkley, my ignorance may be showing, but I have always taken rent-seeking to involve the dissipation of real resources. Here is a nice example of what I had in mind, from David Friedman:

"The year is 1870. Somewhere beyond the frontier, there exists a valley that will one day be settled and farmed.Whoever builds the first rail line into it will have a monopoly; there will never be enough business to support a second line. If the rail line is built in 1900, the total monopoly profit that the railroad will eventually collect is $20 million. If the railroad is built before 1900, it will lose a million dollars a year until 1900, because demand will not be adequate to cover costs.
" I plan to build the railroad in 1900. I am forestalled by someone who plans to build in 1899; $19 million is better than nothing, which is what he will get if he waits for me to build first. He is forestalled by by someone willing to build still earlier. The railroad is built in 1880 - and the builder receives nothing but the normal return on his capital for building it."

rosserjb@jmu.edu said...

Kevin,

Hmmm. I don't think this is quite it. This Friedman argument looks more like a rent dissipation argument rather than a resource dissipation argument, unless you want to argue that getting the rail line built 20 years earlier than would max the profits of the monopolist railroad is somehow a resource wasting welfare loss. If there is some demand for the rail line starting that early, in fact this example looks like not merely rent dissipation, but a sort of reversion to an efficient, competitive outcome due to some sort of backward induction in a duopoly game.

I think more appropriate for this example as an example of rent seeking would be if in fact the valley could sustain two rail lines profitably, but one of the railroad companies uses its lobbyists to get the government to allow only one rail line in there, thus guaranteeing monopoly profits for the more successfully lobbying railroad. Just to make the case more in line with historical experience, we could throw in having the government also give away a bunch of land to the railroad to build its line, :-).

kevin quinn said...

Barkley, ok let's change the example. Suppose there is no demand before 1900, the plant costs $20 million and the interest rate is 5%. Forestalling entry now costs $1 million a year and is pure waste.

The point more generally I wanted to make is that resource dissipation is at the heart of rent-seeking. When two companies lobby to get monopoly rights, the lobbying expenditure is wasteful resource dissipation.

rosserjb@jmu.edu said...

Kevin,

I do not think changing your example as you did helps, as you will not get the rail line built so early. Of course, lobbying expenses are pure waste, or to be old fashioned, "unproductive labor." and a lot of resources can get used up in that, quite aside from the corruption aspect of all of it. But the key to rent seeking is the rent that gets redistributed to the monopolist from the public, which is not in itself a dissipation of resources.