The Welfare Costs of Rent-Seeking: A Methodologically Individualist & Subjectivist Revision

Makovi, Michael (2015): The Welfare Costs of Rent-Seeking: A Methodologically Individualist & Subjectivist Revision.

Abstract

Gordon Tullock is recognized for being the first to recognize the true costs of rent-seeking as including not only the Harberger triangle but also the Tullock rectangle. This rectangle does not constitute merely a lossless transfer of wealth, but it causes a misallocation of resources as rent-seekers invest resources in lobbying. However, a close reading of Tullock’s writings show that his arguments are formulated in a holistic fashion, speaking of what is efficient or inefficient for society. Rent-seeking is inefficient because it reduces societal welfare. But according to a methodologically individualist and subjectivist economics, such a claim is invalid. We must distinguish between positive economic fact and normative moral philosophy, and while rent-seeking does indeed cause a reallocation of resources, only normative moral philosophy can pronounce this to be “bad.” We call for a reconstruction of utility and welfare economics based on methodological individualism and subjectivism with implications for the theories of monopoly and competition: practices which Neoclassical perfect-competition theory considers to be evidence of rent-seeking should instead be deemed as indications of genuine competition under conditions of uncertainty, subjectivity, and ignorance. Political economy should be concerned with ascertaining which institutions will best enable individuals to pursue their individually subjective ends – or else economists should be explicit about their normative preferences and political philosophies.

• Item Type: MPRA Paper
• Language: English
• Keywords: Tullock; rent-seeking; interest groups; efficiency; subjectivism; methodology
• Subjects: B - History of Economic Thought, Methodology, and Heterodox Approaches > B3 - History of Economic Thought: Individuals > B31 - Individuals; B - History of Economic Thought, Methodology, and Heterodox Approaches > B4 - Economic Methodology > B41 - Economic Methodology; D - Microeconomics > D6 - Welfare Economics > D61 - Allocative Efficiency ; Cost-Benefit Analysis; D - Microeconomics > D6 - Welfare Economics > D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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