The Political Economy Analysis On Rent-seeking

This thesis tries to do research on rent-seeking phenomenoncomprehensively and deeply, in order to construct the framework of rent-seekingtheory. From doing so, the author can illustrate some new phenomenonoccurred in our economy since the opening-door policy carried out, andprovide China's socialism market economy institutional constriction withtheoretical guidance. Therefore, this thesis's logical structure consists of twoparts: theory research and application research.In the first part, I put forward a primary framework of political economyanalysis on rent-seeking. In the second part, I give the exploration of rent-seekingproblem occurred during China's economy transition period. So, the first part isabout the general theory of rent-seeking. I normalize and direct to followingchapters' analysis by discussing the methodology. This thesis combines positiveanalysis with normative analysis, and induction with deduction. The positiveanalysis bases on cost-benefit analysis and the method of institution analysis. Iintroduce the thought of game theory into the research of rent-seeking. Afteremphasizing the dependence of economics theory to its prerequisites, I giveseveral prerequisites at the beginning of rent-seeking research. All of mytheoretical analysis bases on those prerequisites, especially the "new economicman" one. It is the most important and basic prerequisite in my thesis. Combiningthe ideology with the economic man's maximizing, I resolve the contradictionbetween North's ideology theory and the neoclassical economics' maximizingprerequisite. For in Mr. North's opinion, when ideology does work, the behaviorof economic man is no longer rational, which means maximizing is no longerbeing pursued. I define the utility function of economic man as his benefitfunction minus cost function, which is obviously a multi-parameter function.Here, the function of ideology is to change preference system and reservation pricefirst. Then it changes the benefit function and cost function. Thus, the utilityfunction is changed. The behavior of economic man is the consequence of hiscost-benefit calculation. All in word, there is no difference among men's basicmotivation of behavior, which all aim at maximizing. The difference of men'sbehavior only lies in the variation of the result that benefit minuscost among different people. This variation results from the influence of ideology. Following that, I retrospect rent thought history. I draw the concept of rent andmodern rent theory, by discussing the formation and evolution of rent concept. Then Iexplore the arising and extinguishing law of rent that is fundament to rent analysis.Here, I define the result that productive factors' interest minus their opportunity costas profit or rent. The former results from entrepreneurial innovation, the latterresults from government intervention. From doing so, I can divide theinterest-seeking behavior of economic man into two kinds: the beneficialprofit-seeking behavior and harmful rent-seeking one. The former is productiveaction and the latter is nonproductive. The motivation of these two behaviors is thesame, but the different behavior result from different institution environment. Inother words, it is institution environmental changing that lead to economic man'sinterest-seeking behaviorchanging, not themselves moral changing. After defining rent and rent-seeking, I analyze the reason, externalmanifestations, inherent law, resulted consequence and control principle ofrent-seeking systematically. First, I give reasons to institution environmentalchanging, from "market failure" to "government failure", and put forward"adjusting failure". Then, I point out that the sources of rent are: government'sunwitting rent-creating, passive rent-creating and active rent-creating. I alsodescribe manifestations of rent-seeking activities at three levels. After that, Ianalyze rent-seeking activities with cost-benefit method and define the economicallimit of rent-seeking, then I provide basis for controlling it. At last, after illustratingthe harm of rent-seeking activities, I point out the essential principle of controllingrent-seeking. That is, let economic man will not seek, need not seek, dare not seekand can not seek. In order to rich the primary fundamental framework ofrent-seeking theory, I give full description and its application to rent-seeking theoryfrom eight respects. They are public choice theory, theory of international trade,governmental economics, new institutional economics, modern property righttheory, new economic history, economics of development and transitionaleconomics. The second part is about the research on rent-seeking in transitional economy.At first, I introduce the background of leading rent-seeking theory into China andChina's reform route choice as well as its advantage and disadvantage. Since thegradual transitional way, we carry out "the two kinds of price" policy. Itsdisadvantage is that large amount of rent is created in our economy and inducesrent-seeking activities inevitably. For the first time, I divide the source of rent intothree kinds: government unwitting rent-creating, government passive rent-creatingand governmentactive rent-creating. After this distinction, I deepen the realization of where rentcomes from and how to seek by studying their microeconomical mechanism. I alsocompare rent-seeking activities of market economy with that of transitional economy,and conclude that the relationship between government intervention degree andrent-seeking scale is similar to "Laffer Curve". Then, I turn positive research tonormal one. I distinguish the difference between rent-seeking and corruption as wellas the mutual set between them. Then I clarify some misunderstanding, such asrent-seeking is equal to corruption, and other one-sided thoughts on positive effectof rent-seeking. After pointing out the harm of rent-seeking, I put forward fourrespects of policies to innovate institution so as to solve this problem. They are theinstitution innovation to make economic man not will seek, not need seek, not dareseek and not be able to seek. However I do not satisfy with policy's presentation,instead, I explore the possibility and essential conditions that these policies are putinto effect from the view of institution changes. The essential conditions are fiverespects. (1) Rent-seeking activities do diminish the utility that the ruler couldacquire and do threaten his position. (2) The ruler has sufficient social scienceknowledge about how to control rent-seeking. (3) The interior man in bureaucratagency does threaten realizing the ruler's targets. (4) The ruler depends on supportof profit-seeking group to consolidate his position. (5) The formal institutionarrangement must get the assent and support from the informal institution. Mr. North says: "The existing of government is the key to economy growth,however, it is also the root of man-made economy recession." So there is onlypossibility not necessity in the success of government intervention. "The visiblehand" could supervise market successfully only under the condition that it iscorrespondence with "the invisible hand". At the same time, "the visible hand"could play important role only when prudently utilized, as well as when thegovernment know about what should do and what should not do. Thus, this thesisbegins at the research into rent-seeking and ends at the research into relationshipbetween market and government.