Rent Seeking and the Presence of Existing Distortions
When market distortions already exist, producers may attempt to surpress or encourage the establishment of new distortions in hitherto undistorted markets, and may have a strong incentive to appeal to the language of second best to further their private interests. In these situations, the total amount of resources spent on trying to encourage or discourage intervention in an undistorted market can exceed the sum of the partial equilibrium Harberger (1964) “triangle” and Tullock (1967) “rectangle” measures of welfare loss. This paper uses a simple example to illustrate these points
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- Harberger, Arnold C, 1971. "Three Basic Postulates for Applied Welfare Economics: An Interpretive Essay," Journal of Economic Literature, American Economic Association, vol. 9(3), pages 785-97, September.
- R. G. Lipsey & Kelvin Lancaster, 1956. "The General Theory of Second Best," Review of Economic Studies, Oxford University Press, vol. 24(1), pages 11-32.
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