Marginal lobbying cost and the optimal amount of rent seeking

In some ideal world in which information was free and the desire to promote the public interest prevailed, the results developed in this paper would have no relevance. The efficient amount of publicly provided goods and services would be known costlessly and the public interest motivation would assure that these quantities were provided. In our less than ideal world, however, things are far different. Costly lobbying activities provide useful, though incomplete, information on the relative value of different public outlays. But with private interest rather than public interest dominant, this lobbying will also be used by special interests as a means of acquiring socially excessive quantities of government services. Once the potential for lobbying to be both efficiency increasing and efficiency decreasing has been recognized, we are led to consider the efficient amount of lobbying, or (when the private cost of lobbying can be adjusted at the margin) the efficient marginal cost to impose on lobbyists. When this is done, it is found that efficiency can call for imposing a marginal cost on lobbyists that results in either more or less of a government service than would be efficient in the absence of lobbying cost. In other words, when we explicitly recognize that lobbying cost has to be added to production cost when determining the efficient provision of a government service, it is possible that the quantity considered efficient will increase. When this is the case, a positive amount of rent seeking, as conventionally defined, becomes an essential part of the efficient solution. Copyright Martinus Nijhoff Publishers 1985