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University of Washington
Political Science
POL S 270
Anthony Gill

Rent and Rent Seeking Lecture 4 I. PUBLIC POLICY & RENT SEEKING a. A political problem with economic twist b. Rent = value of a unique asset that can’t be easily reproduced OR a return on asset that is above and beyond what is needed to keep the asset in production (“excessive profit”) c. Ways to get rents: i. Unique quality (e.g. brand names) ii. First mover status (e.g. Microsoft, Qwerty) iii. Government intervention (primary) d. Rent seeking is the process of using political system to affect a transfer of resources from 1 set of people to another (e.g. to enhance profits, gain entitlements) i. Politicians extract rents in the forms of votes, power, campaign contributions, etc. e. Deadweight costs tend to be generated from rent seeking i. Adds costs (transaction costs, negative externalities, e.g. government’s “make work” jobs) but no social benefit ii. E.g. spending an hour writing a grant but not getting paid, not getting grants, waste time writing it, no payoffs II. Problems with/in politics a. How do you control rent seeking? b. Who polices the police, organization, politicians, anyone with power to enforce/coerce? c. What form of government is best (efficient and just) for society? III. Principal-agent problem = Problem of how to get 1 person (agent) to behave in accordance with the goals of another (principal) when the interests of the 2 actors aren’t perfectly aligned. i. E.g. pizza delivery boy and his boss ii. E.g. citizens are principals, elected representatives are the agents iii. Using a security camera to prevent employee theft IV. Rational choice theory = Theory of human behavior where individuals choose the most efficient (maximize benefits) means (strategy/tactic) to some end (goal) given various environmental and strategic constraints a. Assumptions: i. Utility maximization 1. People make strategic decisions to get most utility for least cost 2. Thin rationality/utility (goals unspecified) a. $1 is more than no money 3. Thick rationality/utility (context included) a. E.g. what is someone is homeless/rich? 4. Culture – cause or constraint? a. Why do we leave tips? b. Interesting fact: individualistic societies give more Rent and Rent Seeking Lecture 4 egalitarian dollar splits ii. Expected utility maximization 1. World is filled with risk (outcomes with known probabilities) and uncertainty (unknown probabilities) 2. EV1=Pa (value a) + Pb (value b), P=probability of event occurring a. Choose option with greater expected value 3. As uncertainty increases it becomes increasingly difficult to estimate “p” and make rational decision a. Policy uncertainty (changing outcome unknown) may harm economic decision-making more than bad policy b. (prob.)(bene
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