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Transitional gains and rent extraction

Author

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  • Randall G. Holcombe

    (Florida State University)

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.

Suggested Citation

  • Randall G. Holcombe, 2019. "Transitional gains and rent extraction," Public Choice, Springer, vol. 181(1), pages 127-139, October.
    • Handle: RePEc:kap:pubcho:v:181:y:2019:i:1:d:10.1007_s11127-018-0614-5
    DOI: 10.1007/s11127-018-0614-5
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    References listed on IDEAS

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    More about this item

    Keywords

    Rent-seeking; Transitional gains; Rent extraction; Public choice; Gordon Tullock;
    All these keywords.

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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