Research On The Rent-Seeking Theory

The rent seeking theory made its first appearance in the western world in the 1960s. And ever since then, the theory, mainly under the influence of the Public Choice School's tradition of trying to reveal the mysteries in the public policy making process, has been focusing its studies on the costs of rent seeking activities and on the invention of effective policies to prevent such costs, which is, of course, quite plausible and suitable with the western world where market economy is fully developed. However, a theory produced and developed in such an economic environment is much likely to suffer due to the lack of adequate opportunities to observe rent seeking activities in transition economies where everything is in change As what the western economists see is merely partial reality, the present rent seeking theory bears an innate flaw: it fails to include changing institutions in its studies. The economic and administrative system reforms now in full swing in China provide with us abundant chances to observe rent seeking activities, which enables us to enrich and improve the rent seeking theory. This dissertation intends to study rent seeking activities with traditional economics tools. It will first try to reexamine and redefine three basic economic terms: rent, economic rent, and rent seeking. Then, it will start out researches on the forming of rents, the decision making process of the rent seeker, the general features of rent seeking behavior, the institutional environments where rent seeking occurs, and the positive as well as negative effects of rent seeking, which are to make up the framework of the rent seeking theory. After implementing a thorough review over the history and developments of rent seeking studies, the dissertation summarizes the achievements and flaws in this field. The author finds that rent seeking research is still held at the welfare calculation instead of the ideological level and that even the basic concepts like rent seeking itself are vaguely defined. Therefore, the author decides to contribute most of the work to the clarification and redefinition of the fundamental concepts and to the construction of the framework of the rent seeking theory. First of all, the dissertation examines the nature and originalities of the economics terms of rent, redefines the term of economic rent by discarding the confusing term of opportunity cost but introducing a new one termed general rent before it comes to a crude definition of rent seeking: the behavior that seeks economic rents by taking advantage of the flaws in the existing institutions, or by distorting or even breaking institutions. After investigating various rent seeking activities, it makes a general study of rent seeking by looking into the forming of economic rents and the usual means by which rent seekers secure economic rents. With these basic researches, it proposes two principles to confirm a rent seeking activity with, and succeeds in separating general rent seeking from economic rent seeking, which has been a problem that has haunted rent seeking theorists up to date. Then, the dissertation analyzes rent seeking procedures and the characteristics of rent seeking behavior in each stage. It is found that economic rent is usually produced by inappropriate public polices, the existence of undefined properties in the public area, the flaws in the market system, opportunistic motives, or through illegal activities. It also discovers that there are eight types of constraints rent seekers have to overcome before they can successfully secure any "extra profits", including market constraints, institutional constraints, cost constraints, information constraints, qualification constraints, resource constraints, cultural constraints and time constraint. Based on four variants of rent seeking returns, resources required for rent seeking, institutional constraints and costs of rent seeking, a brief model illustrating the dynamics of rent seeking is produced. According to the basic features of rent seekers and their costs and returns from rent seeking, 3 ways to categorize rent seekers are suggested in the next chapter, and the decision making process of a typical rent seeking behavior, a civil servant's corruption, is analyzed so as to reveal the general laws governing rent seeking agents. After that, both positive and normative analyses are carried out over totally five typical rent seeking activities, which results in the proposal of two assessment principles for rent seeking effect evaluation: the social utility principle and the social efficiency principle. Different from other rent seeking scholars, the author holds that rent seeking produces not only negative effects but also positive ones, which has overthrown the deeply rooted belief that rent seeking always brings about welfare losses. After discussions on rent seekers, rent seeking decision making process and effectsof rent seeking, the dissertation probes into the interactions between rent seeking and public policies. Different characteristics of rent seeking activities in different institutional environments are analyzed. And the author has convincingly proved the fallacy in the notion that no rent seeking exists in either absolute central planning or pure market economies. Using the well-known Coasian example, the author has shown that policy choice space will not be affected due to rent seeking possibilities, which lays the theoretical foundation for finding efficient policies to control rent seeking activities, especially those undesirable ones. In accordance with the analysis above, the author proposes three laws to observe when selecting policies, i.e., policies should encourage activities seeking general rents, policies should promote resource movement and ensure equality among all market agents, and policies should be effective in preventing rent dissipation. As an application of the theories obtained from above, China's reforms are examined from the rent seeking aspect. It is obvious that rent seeking is rampant in present China whose economy is undergoing transition. Nevertheless, China has achieved the most rapid economic growth for about two decades. This becomes a paradox according to the neo-classical rent seeking theory, but it is easily solved with the theories achieved in this dissertation: it is some of those rent seeking activities that help speed up the introduction of market economy rules into the economy. Using the findings in the dissertation, the path and steps to take in China's administrative reforms are anticipated. To conclude the whole dissertation, future researches in both the basic theories and the applications of them in relevant fields are suggested.