Free Entry and Efficient Rent-Seeking

This paper concerns rent-seeking and the extent to which rents are dissipated under various circumstances. Gordon Tullock’s (1967) insight that expenditures made to capture an artificially created transfer represent a social waste suggested that the cost to the economy of monopoly and regulation is greater than the simple Harberger (1954) deadweight loss. Indeed, under Tullock’s original formulation and in the extensions of his work by Krueger (1974) and Posner (1975), rents are exactly dissipated at the social level ($1 is spent to capture $1), so that the total welfare loss from such activities is equal to the Harberger triangle plus the rectangle of monopoly profits.