Corruption and rent-seeking

Abstract

The rent-seeking theory was one of the first economic instruments developed to model corruption in the public sector. Comparing corruption with lobbying, it proposes that the former is the lesser of two evils, since lobbying entails the wastage of resources in the competition for preferential treatment. This study shows that the traditional rent-seeking theory misunderstands three factors: first, the impact of a corrupt monopoly on the rent's size; second, corruption as a motivation for supplying preferential treatment and third; that corruption involves a narrower range of interests than those of competitive lobbying. Taking these factors into consideration, the opposite argument is valid: corruption has worse welfare implications than alternative rent-seeking activities.