DP5893 A Theory of Rent Seeking with Informational Foundations

Author(s): Johan N.M. Lagerlöf

Publication Date: October 2006

Keyword(s): rent seeking , competition , information acquisition , disclosure , welfare

JEL(s): D42 , D43 , D72 , D83 , L13

Programme Areas: Industrial Organization , Public Policy

Link to this Page: www.cepr.org/pubs/dps/DP5893.asp.asp

I develop a model of rent seeking with informational foundations and an arbitrary number of rent seekers, and I compare the results with Tullock's (1980) classic model where the influence activities are "black-boxed." Given the microfoundations, the welfare consequences of rent seeking can be studied. In particular, I show that competition among rent seekers can be socially beneficial, since the additional information that the decision maker gets access to makes the increase in rent-seeking expenditures worthwhile. However, the analysis also highlights a logic that, under natural parameter assumptions, makes the rent seekers spend more resources on rent seeking than is in society's interest, which is consistent with the spirit of the rent-seeking literature.