## Rent Seeking

_IMF Working Papers, March 1, 2005_

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## Bibliographic details
- Authors: Shankha Chakraborty, Era Dabla-Norris
- Published: March 1, 2005
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451860627.001

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### Summary
- This paper examines the relationship between rent seeking and economic performance when governments cannot enforce property rights.
- With imperfect credit markets and a fixed cost of rent seeking, only wealthy agents choose to engage in it, since it enables them to protect their wealth from expropriation.
- The level of rent seeking and economic performance are determined by the initial distribution of income and wealth.
- When individuals also differ in their productivity, not all wealthy agents become rent seekers and the social costs of rent seeking are typically lower.
- In both cases, multiple equilibria with different levels of rent seeking and production are possible.

### Key findings and mechanisms
- Imperfect credit markets and a fixed cost of rent seeking create a wealth threshold: only wealthy agents undertake rent seeking to protect wealth from expropriation.
- Initial distribution of income and wealth is a determinant of aggregate rent seeking and of aggregate economic performance.
- Heterogeneity in productivity reduces the incidence of rent seeking among wealthy agents and lowers the social cost of rent seeking relative to the homogeneous-productivity case.
- The model admits multiple equilibria with varying levels of rent seeking and production, implying path dependence of outcomes.

### Conceptual implications
- Property-rights enforcement limitations interact with financial market imperfections to shape incentives for rent seeking.
- Distributional initial conditions (income and wealth) can produce persistent differences in economic outcomes through their effect on rent-seeking participation.
- Productivity heterogeneity among agents moderates the aggregate welfare loss from rent seeking.

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/rent-seeking-18015_