The Cost of Rent Seeking
Gordon Tullock (1967), in attempting to measure the costs of rent seeking, was the first to develop the concept. As you learned in Chapter 10, the deadweight loss of monopoly results from the firm producing a less-than-efficient quantity of output. However, Tullock argued that many of the economic rents, or profits earned by the firm, are also wasted in the process. The cost of rent seeking, or the spending to capture these profits, turns them into a social cost of monopoly. In fact, if competition for the monopoly were vigorous, the monopolist profits could be exactly equal to the resources wasted in competition for the monopoly privilege. The “cost of capture” is unproductive in the sense that it uses scarce resources but does not generate any economic activity that lowers price or increases output.