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Illegal Markets and the Social Costs of Rent-Seeking

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  • Paul, Chris
  • Wilhite, Allen W

Abstract

This paper argues that making goods or services illegal results in an increase in the social costs associated with rent-seeking. The increased social cost is in the form of negative externalities that result from market participants' use of coercion and violence in attempts to control trade in the illegal good. Consequently, the social costs of rent-seeking will exceed the value of resources dissipated in rent-seeking competition and, where the external costs exceed the undissipated portion of the Tullock cost, the social cost of rent-seeking is greater than the sum of Tullock and Harberger costs. Copyright 1994 by Kluwer Academic Publishers

Suggested Citation

  • Paul, Chris & Wilhite, Allen W, 1994. "Illegal Markets and the Social Costs of Rent-Seeking," Public Choice, Springer, vol. 79(1-2), pages 105-115, April.
    • Handle: RePEc:kap:pubcho:v:79:y:1994:i:1-2:p:105-15
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    Cited by:

    1. Mudambi, Ram & Paul, Chris, 2003. "Domestic drug prohibition as a source of foreign institutional instability: an analysis of the multinational extralegal enterprise," Journal of International Management, Elsevier, vol. 9(3), pages 335-349.
    2. Jones, Philip & Cullis, John, 1996. "Legitimate and illegitimate transfers: Dealing with "political" cost-benefit analysis," International Review of Law and Economics, Elsevier, vol. 16(2), pages 247-257, June.
    3. Indra de Soysa, 2021. "Economic governance and homicide: Some theory and empirics, 1990–2017," Journal of Peace Research, Peace Research Institute Oslo, vol. 58(5), pages 1004-1017, September.
    4. Alice Guerra & Barbara Luppi & Francesco Parisi, 2019. "Productive and unproductive competition: a unified framework," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 36(3), pages 785-804, October.
    5. Tatiana Zhuravleva, 2013. "Corruption Measurement: the case of Russian Federation," Working Papers 0068, Gaidar Institute for Economic Policy, revised 2013.
    6. Garoupa, Nuno, 1997. "Optimal law enforcement and the economics of the drug market: Some comments on the Schengen Agreements," International Review of Law and Economics, Elsevier, vol. 17(4), pages 521-535, December.
    7. Mark Thornton, 2004. "Prohibition vs. Legalization: Do Economists Reach a Conclusion on Drug Policy?," Econ Journal Watch, Econ Journal Watch, vol. 1(1), pages 82-105, April.

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