Improper Selection of High-Cost Producers in the Rent-Seeking Contest
The resources two rival businesses spend to raise their own chance of getting a unique monopoly license are a cost of rent-seeking. When those businesses differ in the costs of producing the monopoly good there is an additional cost of rent-seeking that has not been sufficiently studied in the literature. If the high cost producer wins the license, the difference between his cost and the costs of his more efficient rival is a social loss from improper selection of producers by the political process. The loss becomes more severe when the ability to lobby of the inefficient producer outstrips that of the efficient producer. This may help to explain why specialized lobbying evolved. Specialized lobbying reduces the social cost from improper selection of firms by allowing efficient producers to hire expert rent-seekers and so to raise their chances of gaining monopoly concessions. Copyright 2000 by Kluwer Academic Publishers
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- Filip Palda, 1998. "Evasive Ability and the Efficiency Cost of the Underground Economy," Canadian Journal of Economics, Canadian Economics Association, vol. 31(5), pages 1118-1138, November.
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