The Index of Rent Seeking in the United States
What is Rent Seeking?
Voluntary trade is mutually beneficial. Two parties will not consent to a transaction if they do not believe they will benefit from it. However, tariffs, quotas, monopolies, and other public policies allow some people to gain more by trying to appropriate wealth than by producing it themselves. This behavior is called rent seeking.
The Theory of Rent Seeking
Rent seeking research began when scholars developed a complete picture of social losses from government interventions. It showed that the resources allocated to gaining, preventing, and maintaining government privileges are part of those policies’ social costs.
Harberger’s (1954) welfare analysis, also known as a “deadweight loss triangle”, did not account for those costs (H in the picture). The rent-seeking insight originated with Tullock (1967), who argued that while transfers may cost nothing to society, scarce resources are wasted in seeking or preventing others from gaining access to rents (T in the picture).
According to Tullock (1967, p. 47), “these largely offsetting commitments of resources are totally wasted from the standpoint of society as a whole.” Thus, the deadweight loss triangle does not fully account for the social loss caused by policy interventions. The resources allocated to capturing and defending rents also must be recognized as social costs.
The Index
Despite Gordon Tullock’s effort to motivate researchers to quantify investments in rent seeking, the empirical measurement of rent-seeking activity remains under-studied. Laband and Sophocleus (2019) argue that “it is the responsibility and intellectual purview of public choice scholars to convince others that rent-seeking does, in fact, take a sizable toll on an economy”. This website makes the rent seeking indexes introduced in Melo and Neilson (2023) publicly available so that these data can be a public good to Public Choice scholars.
These new estimates of rent seeking are developed by comparing the industrial composition of MSAs that contain a state capital with those of a comparable synthetic match. Each of these synthetic matches are constructed as a weighted average of all MSAs that do not contain a state capital, where the weights are chosen via entropy balancing. We offer the first panel estimate of rent seeking in the United States by state and year for the years 2004-2020. We also provide the first industry-specific measures of rent seeking, in addition to aggregate indexes of traditional, in-kind, indirect, and total rent seeking. All measures are available under the Data section of this website.