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Rent seekers who demand government production: Bureaucratic output and the price of complements

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  • Bruce Benson
  • Jean Mitchell

Abstract

Many goods and services produced by government bureaus are sold at prices which do not maximize net revenues (maximize profits or minimize losses). Indeed, bureaucratic institutions typically create incentives to expand production beyond that which would maximize net revenues. Furthermore, many of the products sold by government bureaus are highly complementary to privately produced goods and services. If a bureau's output is not priced to maximize net revenues, then private sellers of various complements may be in a position to extract rents by adjusting their prices. This paper explores the implications of bureaucratically generated rents for privately produced complements. First, rent seeking can materialize when private sector interests apply pressure for expanded bureau production and lower bureau prices. Second, if the bureau does expand its production capacity beyond the net revenue maximizing level, and if a private producer obtains exclusive rights to supply complements, then the extraction of rents will result in an inefficient mix of resources in bureaucratic production. The basis of the inefficiency is not the reason often given, however. Rather, inefficiencies arise because the actual level of use is less than that which the ‘bureaucratic plant’ was constructed to produce due to the relatively high price of the complementary services. Copyright Martinus Nijhoff Publishers 1988

Suggested Citation

  • Bruce Benson & Jean Mitchell, 1988. "Rent seekers who demand government production: Bureaucratic output and the price of complements," Public Choice, Springer, vol. 56(1), pages 3-16, January.
  • Handle: RePEc:kap:pubcho:v:56:y:1988:i:1:p:3-16
    DOI: 10.1007/BF00052066
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    References listed on IDEAS

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    1. Robert D. Tollison, 1982. "Rent Seeking: A Survey," Kyklos, Wiley Blackwell, vol. 35(4), pages 575-602, November.
    2. Posner, Richard A, 1975. "The Social Costs of Monopoly and Regulation," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 807-827, August.
    3. Niskanen, William A, 1975. "Bureaucrats and Politicians," Journal of Law and Economics, University of Chicago Press, vol. 18(3), pages 617-643, December.
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    Cited by:

    1. Bruce L. Benson, 2020. "The development and evolution of predatory-state institutions and organizations: beliefs, violence, conquest, coercion, and rent seeking," Public Choice, Springer, vol. 182(3), pages 303-329, March.

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