DP5893 A Theory of Rent Seeking with Informational Foundations

Author(s): Johan N. M. Lagerlöf
Publication Date: October 2006
Keyword(s): competition, disclosure, information acquisition, rent seeking, welfare
JEL(s): D42, D43, D72, D83, L13
Programme Areas: Public Economics, Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5893

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.