Seeking Rents by Setting Rents: The Political Economy of Rent Seeking

In recent years, there has been a large number of papers on the subject of rent seeking. Most such works on rent seeking have taken the rent as exogenously determined by regulators. Regulators, howeve r, may also be expected (and indeed have been shown) to be rent seeke rs and hence the determination of the rent itself should be endogeniz ed to reflect the fact that the rent setters are, themselves, rent se ekers. In this paper, the authors do this by presenting an analysis o f the interaction of regulators, firms, and consumers within a rent-s eeking framework where all three groups are assumed to be self-motiva ted. The analysis is carried out under alternative assumptions regard ing the nature of the market and the reaction functions of the partic ipants. Policy implications are drawn where appropriate. Copyright 1987 by Royal Economic Society.