The Welfare Effects of Rent-Saving and Rent-Seeking
This paper uses an overlapping-generations framework to model the allocation of import licences of intermediate goods according to firm capacity. It shows that this method of allocation encourages rent-seeking and also thereby improves welfare compared with a method that does not allow rent-seeking. A. O. Kreuger (1975, 1974) and J. N. Bhagwati and P. Desai (1970) describe how Turkey and India have allocated imports on the basis of firm capacity, which led to rent-seeking through overexpansion of capacity. J. N. Bhagwati and T. N. Srinivasan (1980) first recognized the possibility that rent-seeking may actually improve welfare in the presence of a distortion, as it does in this paper.
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Volume (Year): 26 (1993)
Issue (Month): 3 (August)
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