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A Model of Rent Seeking and Inequality

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  • Mayuri Chaturvedi

Abstract

Social scientists have argued that inequality fosters rent seeking and that rent seeking is likely to reinforce existing inequalities. In this paper, I formalize these interactions by modelling rent seeking in an unequal endowment economy where agents can choose to be rentiers or not. I find that when the cost of rent seeking is exogenous, more inequality fosters a greater proportion of rentiers, which in turn further skews the distribution of resources. I endogenize the cost of rent seeking by assuming that the rentiers pay the cost to a central institution, which chooses the cost per rentier to maximize its revenue. In this setting, the revenue-optimizing cost of rent seeking per rentier increases with more inequality, which results in a lower proportion of rentiers. However, expost inequality still increases. The results show how economies can end up with persistent inequality in the presence of rent seeking.

Suggested Citation

  • Mayuri Chaturvedi, 2022. "A Model of Rent Seeking and Inequality," Working Papers 202215, University of Liverpool, Department of Economics.
    • Handle: RePEc:liv:livedp:202215
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    More about this item

    Keywords

    inequality; rent-seeking; property rights; institutions; corruption;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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