Showing papers on "Rent-seeking published in 2018"

Rent-seeking in elite networks

Abstract: We employ a unique dataset on members of an elite service club in Germany to investigate how social connections in elite networks affect the allocation of resources Specifically, we investigate credit allocation decisions of banks to firms inside the network Using a quasi-experimental research design, we document misallocation of bank credit inside the network, with bankers with weakly aligned incentives engaging most actively in crony lending Our findings, thus, resonate with existing theories of elite networks as rent extractive coalitions that stifle economic prosperity

Economic development in a rent-seeking society: socialism, state capitalism and crony capitalism in Vietnam

Abstract: This article explains Vietnam’s economic growth and industrial development despite the strong rent-seeking features of its economy. We employed three analytical rent-seeking models to assess three industries: textile-garment and telecommunications, both under a state capitalist system with varying degrees of state control, and the motorcycle industry developed in a crony capitalist manner. Our cross-industry analyses demonstrate how a developing country such as Vietnam overcomes pervasive rent seeking to achieve growth outcomes. Under conditions of controlled economic reform, the Vietnamese government managed rent seeking using various measures of state intervention coupled with gradual market openness in the industrial sectors.

Inequality and Instability

Abstract: Inequality of wealth and income is currently a hotly debated subject not only in the academy but also in society more generally. The protagonists disagree about how inequality should be meeasured. But however they measure it - whether by Gini coefficients, the share of the total distribution earned by a particular group (e.g., the top one per cent), or other ways - they generally agree that inequality has greatly increased in a wode range of countries since the mid-1970s. Agreement does not exist, however, about what causes inequality, what problems result from it, and what might be done to solve them. This paper attempts to answer these questions by reviewing and assessing a diverse literature drawn from economic theory, political science, sociology,philosophy, and economic and financial history.

New rent seeking strategies in housing in Spain after the bubble burst

Abstract: This paper analyses the new rent seeking strategies in housing implemented during Spain’s financial crisis The Spanish Model presents a paradigmatic case of the need for capital to reinvent itself through the articulation of new mechanisms for the production and appropriation of urban rent, as the crisis revealed the limits of strategies that were implemented during the bubble period Amongst these new strategies, the paper analyses the rescue of financial entities, the creation of a ‘bad bank’ and the establishment of Spanish REITs These mechanisms are leading to financialisation of rental housing and the emergence of vulture funds as new transnational owners of housing

A note on revenue distribution patterns and rent-seeking incentive

Abstract: This paper presents a simple model of rent-seeking incentive to explain the emergence and dominance of the rapacious rent-seeking policies in a number of oil abundant developing and transition economies. The Hubbertian distribution of the commodity exports over time, the magnitude of these revenues, and the availability of offshore havens for the illicitly appropriated rent explain the shift from productive public policies to rapacious rent-seeking. In addition, we show that the existence of the well-functioning democratic institutions prior to the revenue boom precludes the emergence of rapacious rent-seeking institutions due to prohibitively high costs of rent-seeking. The paper complements the existing literature by delivering a novel theoretical rationale for the predisposition of the oil-rich countries to the resource curse.

Urban Conflict, Rent Seeking, and Corruption Economic and Political Institutions in a Historical Perspective

Abstract: This paper is an empirical analysis to explore the relationships between urban conflict and both rent seeking and corruption. It examines social disturbances in medieval France through a sample of twelve towns examined over the period 1270-1399 in a real context of informational asymmetries, commitment problems, and issues indivisibilities. As regards the economic corruption class, it is found that townspeople rebel more often and more intensely against the extortion of funds carried out by policy makers than against the embezzlement of a part of these funds. As to the political corruption class, the findings highlight that abuse of power against municipalities is identified in more social unrest than influence peddling against these local institutions. Furthermore, it is shown that rent-seeking-related policies (like arbitrary actions limiting property rights, economic rules-based policies, and targeted political measures) have less influence on urban conflict than corrupt policies do. These findings produce insights that apply beyond the historical context and analysis of the paper. Situations presenting over-indebted towns despite overtaxed people disturb also modern democracies.

Organized Crime in Michoacán: Rent‐Seeking Activities in the Avocado Export Market

Abstract: The aim of this article is to contribute to the existing measurements on extortions by organized crime and assess the impact of this predatory activity on economic growth. Extortions should be evaluated beyond the number of reported crimes to understand how much money is drained away from the legal economy. To set the stage I first analyze the illegal activities carried out by organized crime groups in the Mexican state of Michoacán during 2001-14. Within this context this article presents a case study of extortions in the avocado legal export market. Specifically, this article shows how the criminal organization, the Knights Templar (KT), extracted rents from this legal market, what was the estimated magnitude of that rent, how tangential was this source of revenue to organized crime, and what was the adverse impact of these extortions of the KT on the economy of Michoacán by looking at the performance of the main macroeconomic variables.

The Impact of E-Hailing Competition on the Urban Taxi Ecosystem and Governance Strategy from a Rent-Seeking Perspective: The China E-Hailing Platform

Abstract: Nowadays, the way of Internet travel in China presents diversified development. Rapid expansion in the personal mobile terminal and Internet infrastructure for the Internet travels to the ecosystem of development and evolution. This paper explores the influence of the expansion of the e-hailing ecological community on the urban taxi ecological community, and the problems of profit-seeking, rent-setting, and rent-seeking from the capital behind the e-hailing platform. With entrance into the urban travel ecosystem with ride-hailing platform enterprises and emerging business models, how does (venture) capital cause the change of the urban taxi ecology? Is it essentially the rent-setting and rent-seeking behavior of capital that obtains the market monopoly status of e-hailing? What are the difficulties for governments and the public in regulating rent-seeking in capital and emerging business models? The aim is to explore the new governing strategy of urban taxi ecology. The paper chooses the case of the DiDi e-hailing platform, and performs a study on the utility and indifference curves quantitatively, and constructs a rent-seeking liaison between platform’s entry into the market and the platform’s monopoly. In this paper, the ecological system of the taxi industry is first sorted out, and the community relationship between the traditional cruise taxi industry and the e-hailing industry, and their market supply and demand relationship are clarified. Secondly, from the main theoretical perspective of rent-seeking behavior, this paper analyzes the causes of the rent-setting rent-seeking behavior of e-hailing platform enterprises and the venture capital behind them, and the problems of public power supervision. As the red pack & subsidy market strategy changes the utility (indifference) curve of passengers, the consumption preference of passengers is more inclined to e-hailing. With the expansion of the e-hailing community, the e-hailing platform partly replaces the regulatory role of the government, and venture capital investors as rational-economic individuals, and its agency responsibilities and profit-seeking characteristics naturally form a contradictory pair. The introduction of competition is a means among market policies to break monopoly. Even so, commercial competitors are able to avoid laws or regulations by the means of commercial mergers or through the implementation of variable interest entities control. Governments should therefore seek to participate actively in the governance of such organizations.

Varieties of State Capitalism

Abstract: The minimal state concept of the neo-liberal policy agenda was queried worldwide after the 2007/8 global financial crisis. Increased state intervention differed in its scope and durability in various capitalist models. Countries with stable and strong democratic political and market economic institutions witnessed a brief episode of nationalizations that was soon followed by the sale of acquired assets. However, new democracies responded differently. In most emerging market economies, post-communist and developing countries alike, increased state intervention remained in place and was used to various political purposes. These ranged from large-scale development programs to simple political rent seeking. The paper concludes that weak social and international control over political institutions may result in rolling back of democratic political institutions and drastic weakening of market economic institutions, the rule of law and competition.

Privatizing Benefit and Socializing Cost: Market Education as Rent Seeking

Abstract: The current movement toward increasing privatization in general and market education in particular has been extensively examined in terms of its neoliberal roots and incompatibility with the aims of public, democratic education. This analysis presents a different critique, one that draws upon current economic theory and research to challenge the most fundamental assumptions and claims of market education. Contrary to presumed virtues of profit, competition and choice, we argue that the forces of rent seeking in the market model of education do not operate according to these principles and are exacerbating structures of inequality and segregation. We outline an alternative conceptual framework for understanding this model.

What leads to official corruption in China? A politico-economic analysis of economic opportunities and government corruption across China’s provinces

Abstract: This paper investigates the relationship between economic opportunities and official corruption in China. We construct a cross-province sample of corrupted officials to analyse the effects on offic...

Fintech: Antidote to Rent-Seeking?

Abstract: Innovations in financial technology, or Fintech, has been ongoing for decades but has recently begun to accelerate. Soon, it will begin to outstrip the ability of regulators to keep pace. What will be the result if the financial sector becomes unregulated? One possibility — drawn from public choice economics — is that rent-seeking will be inhibited or eliminated. Rent-seeking is the distortion of law and regulation for the benefit of special interests, who expend resources to guarantee those distortions in their favor. Rent-seeking is inefficient and inhibits growth and innovation, yet it continues so long as the government has the power to intervene and play favorites in markets. As innovation accelerates, the power of regulators to effectively interfere will be significantly reduced, making rent-seeking an unprofitable venture and advancing the cause of markets and consumers.

Rent-seeking and firm value: Chinese evidence

Abstract: We examine whether engagement in rent-seeking improves firm value in China. Rent-seeking is defined as a firm's use of resources to establish a relationship with the government to obtain government-controlled resources. We incorporate political rents and associated costs into an analytical framework to examine the relationship between rent-seeking and firm value. Using a sample of non-state-owned firms listed on the Shenzhen Stock Exchange and the Shanghai Stock Exchange from 2007 to 2013, we find evidence of the presence of political rents in the form of government subsidies and evidence of associated costs in the forms of corporate philanthropy and excess management remuneration, which largely explains the insignificant relationship found between rent-seeking and firm value. Our further analysis shows that rent-seeking behavior of firms reduces production efficiency, providing additional evidence to support our thesis that engagement in rent-seeking does not enhance firm value in the Chinese context. In an economy with weak institutions, in particular with weak protection for shareholders, managers and politicians can become rent-seekers and take a considerable share of the economic benefits derived from rent-seeking.

Meritocracy, Public-Sector Pay and Human Capital Accumulation

Abstract: We set up a model with search and matching frictions to understand the effects of employment and wage policies, as well as non-meritocratic hiring in the public sector, on unemployment, rent seeking and education decisions. Wages and employment of skilled and unskilled public-sector workers affect educational attainment; the extent of that effect depends on the structure of the labor market and how non-meritocratic public-sector hiring is. Conditional on inefficiently high public-sector wages, less-meritocratic hiring in the public sector lowers the unemployment rate and might raise welfare because it limits the size of queues for public-sector jobs. Public-sector wage and employment policies impose an endogenous constraint on the number of workers the government can hire through connections.

Regulation, rent seeking, and business ethics

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Editor Reputation and Journal Quality: The Case of Regional Economic Association Journals

Abstract: © 2018 Walter de Gruyter GmbH, Berlin/Boston 2018. This study provides a formal game that explores how editor reputation and rent seeking play a part in scholarly research that involves regional economic association journals. The game asserts that a regional economic association journal's reputation is determined by the academic reputation of its editor, the academic reputation of the department wherein the journal is housed, and, among other things, rent seeking by scholars. Evidence from the two most prominent regional economic association journals in the United States, namely Economic Inquiry and the Southern Economic Journal, generally support these aspects of the formal game.

Rent-seeking in agricultural policy revisited: a new look at the Common Agricultural Policy consensus

Abstract: It is generally believed that agricultural interventionism represents the payment of political rents to farmers. We attempt to show that the concept of political rent known as the rent-seeking theory is not valid for agricultural policy. It is not justified to identify the entire subsidies paid to agriculture as a ‘political rent’, since political rents cannot be taken to include payments for the supply of public goods or those transfers which compensate for market imperfections. Our work aims firstly to review the concepts of rents and rent-seeking, and to develop a methodology for quantifying political rents in agricultural policy. We perform comparative analyses with the aim of calculating the ‘pure political rent’, based on the input-output approach for representative farms according to the EU FADN typology and on a decomposition of the Hicks–Moorsteen TFP index for the period 2004-2012 and 27 European Union Member States. The calculations of political rents show that historical payments are neither a rational nor a just solution. No attempts have yet been made in the literature to quantify political rents, even though this might lead to an improvement in the effectiveness of public expenditure. The original methodology is proposed for valuing these items.

Theoretical Implications of “High Rent”

Abstract: There are abundant examples of relatively small lobbying expenditures yielding very high returns. At the same time, lobbying is not very widespread. This article considers lobbying as a form of rent seeking and addresses the question raised previously by economists as to why more rent seeking does not occur, given the very high payoffs that it may garner. It looks at various reasons that might explain why rent seeking is not very prevalent, but the article finds them unsatisfactory. It is suggested that, instead of mainstream economic theory, a new theoretical approach may be required to understand this phenomenon.

Inequality, good governance, and endemic corruption

Abstract: Can a society suffering contests between rich and poor achieve good governance in the face of endemic corruption? We examine a stylized poor state with weak institutions in which a “culture of evasion” damages state authority. Many evade tax payments, limiting the state’s economic development capability. In the face of extensive corruption, it is challenging for the state to establish and implement policies reflecting good governance: for example, a government that is accountable and transparent, efficient and effective, and follows the rule of law. The rich and poor possess different views on what is the appropriate level of enforcing proper payments of taxes due. The government needs to design an effective tax administration policy that minimizes corruption and is sensitive to the present and future needs of society. To do this, it must understand what drives such widespread corruption.

Demystifying the concept of state or regulatory capture from a theoretical public economics perspective.

Abstract: State capture is one form of corruption that has received very little research interest over the years. This could be attributed to the fact that many societies particularly in the developing world seem to have institutionalized it. State capture is a manifestation of government failure which involves the manipulation of bureaucratic rule and formal procedures by business and political elites through family ties, friendship or social groups so as to influence state policies and laws in their favor. The aim of this paper was threefold: First, to give an elaborate and detailed discussion surrounding the phenomenon of state capture from a public finance perspective; second, to discuss the extent of state capture in Zambia citing instances of state capture and how this negatively impacts on society at large; and third, to examine the effects of state capture on key socioeconomic outcomes and broader governance while making comparisons with other countries. Analysis took the form of extensive review of literature and descriptive analysis focusing on frequencies, trend analysis and simple measures of association. This paper outlines that state capture is a manifestation of government failure and is based on the principles of the predatory government view of the state in which state agents act as utility maximizers. It establishes that state capture is a combination of a weak institutional and governance structure which gives room for rent-seeking, lobbying, election rigging and class formation. Further, the study establishes that in Zambia, although the perception of state capture has reduced slightly, it exists and has an effect on socioeconomic outcomes such as human development and the growth of firms. The paper concludes by stressing the need to put in place strong social and political institutions that will help reverse this dangerous trend. Key words: State capture, corruption, market failure, pareto optimum, rent seeking, lobbying, class formation, logrolling.

Political realism and models of the state: Antonio de Viti de Marco and the origins of public choice

Abstract: It is well known that one of the features of public choice, political realism, is embedded in a time-honored Italian tradition going back to Machiavelli and perpetuated by G. Mosca and V. Pareto in their political and sociological writings. The scientific spirit, which in their era led to the foundation of various social disciplines, fostered the application of economic analysis to the political sphere. In that context, Antonio de Viti de Marco (1858–1943) formulated an economic model of the state, consisting of two types of constitutional extremes: the absolute state and the democratic state. We ask herein how that model may be reconciled to G. Mosca and Pareto’s theory of the ruling class, with which De Viti de Marco agreed. Finally, we analyze his political writings in order to reconstruct his interpretation of collusion, rent seeking and “clientelism”, i.e., the redistribution of extracted rent, which takes place in the form of discretionary allocations of public jobs, public contracts and other corporative favors. Collusion is the use of democratic institutions by the ruling classes in order to gain monopoly power. While collusion is the basis of rent creation, rent extraction is not the final goal of politicians; rather, it is a means of strengthening electoral support.

Monopoly Exploitation and Rent-Seeking as an Inevitability of Capital Concentration

Abstract: The primary focus of this research is on the genesis of companies as the dominant assumption of their behavior, from perfect to deviant. The phenomenon of extraction of monopoly rents and its extremely negative effects on social welfare, such as rent-seeking, is assumed by the authors to be conditioned by the genesis of companies, and therefore, describes the nature of their activities and survival in the market. The paper attempts to interpret the relationship between the problems of inefficient production in monopoly markets as a necessity and inevitability caused by the genesis of monopoly companies. Furthermore, the paper synthesizes classical economic analysis of profit maximization in monopoly markets and the negative consequences that arise from it, with the Marxist analysis of the genesis of capitalistic companies. Regardless of the type of ownership profit maximization and competition represent a common denominator for both economic directions. The main thesis of the paper is that the free competition is a generator of capital accumulation, concentration and centralization as well as the most powerful tool for the eliminating market competitors. However, the competition battle does not stop with the market monopolization. It continues at higher levels of production and capital concentration, within and outside the limits of domestic market, whilst the goal becomes a tool – capital to capital, with a tendency for further accumulation of all its negative consequences and connotations. Accordingly, the regulation of imperfect markets is becoming a necessity, thus the dialectical approach to regulation is proposed for various industries through principles and legal solutions for industries which respect specific characteristics of each market and the historical timing of the application of regulation.

Rent seeking activities and aggregate economic performance - the case of Greece

Abstract: We built upon Angelopoulos et al. (2009) and we employ a dynamic general equilibrium model in order to examine the interrelated role of rent seeking activities, institutions and government policy variables, like tax rates and public spending, on Greece’s economic performance during the last fourty years. We focus on the period 1979-2001. According to Kehoe and Prescott (2002, 2007) this period can be characterized as a great depression. The model is the standard neoclassical growth model augmented with a government sector and an institutional structure which creates incentives for optimizing agents to engage in rent seeking contests in order to extract rents from the government. This behavior creates a cost to the economy in the form of an unproductive use of resources. Our main findings are as follows: First, in terms of the path of key macroeconomic variables, our model fits the data quite well. Second, by conducting a growth accounting exercise we find that during the period 1979-1995 a non negligible proportion of the decline of total factor productivity (TFP) can be accounted for rent seeking activities. Third, our model produces an index which can be interpreted as a measure of the quality of institutions in the Greek economy. Our model based index exhibits a resemblance with the internal country risk guide (ICRG) index which is widely used in the literature as a proxy for the quality of a country’s institutions.

Reflections on rent-seeking in Ireland and its bus industry

Abstract: Rent-seeking is the lobbying of government in order to achieve tax reductions, subsidies and restrictions on competition. O’Leary (2015) has argued that the theory of rent-seeking has the potential for explaining Ireland’s long-term growth from the 1950s to the present day. This paper reflects on the destructive effects of rent-seeking in Ireland as a whole and in its bus industry in particular. The next section outlines the pervasiveness of the problem as set out in the Culliton report (1992). This is followed by a section considering rentseeking in Irish transport in general and in the bus industry in particular before the 1980s. The following sections deal with developments in that industry from the 1980s to 2010, the impacts in the bus industry of the liberalisations following the Swords Express case in 2010, and the need for reforms in Ireland’s public institutions. The final section widens the discussion again to rent-seeking in other sectors in the present day.

Fractionalization and Economic Freedom

Abstract: Diversity is often thought to create conflict and harm economic institutions. We hypothesize, however, that the impact of diversity on economic institutions is conditional on political institutions...

Participation Dilemma: The Logic of Voter Turnout in Authoritarian Elections

Abstract: Why do the electorate vote or abstain from voting under competitive authoritarianism? Elite rent seeking and rent distribution are recognized as main determinants of turnout in authoritarian elections, but the logic of voting decision on the side of an oppositional electorate remains understudied. I argue that when the discontent majority's cooperation is needed for producing spoils, the opposition are more likely to participate in authoritarian voting, expecting a credible rent sharing scheme afterwards. Collaborative rent generation and rent sharing schemes consolidate when highly skilled labor becomes indispensable to the authorities; such schemes break down when a resource-based economy takes hold. District-level data from a pervasive modernizing intervention in Iran, The White Revolution, between 1954 and 1975, while demonstrating signs of a resource curse on turnout, show rising literacy to exert a robustly significant and positive effect on turnout under authoritarianism, hence confirming the predictions of the authoritarian turnout model herein.