The Reformer’s Dilemma

Abstract

By redirecting scarce resources away from socially productive employment, the pursuit of wealth transfers by special interest groups converts those transfers into social costs. In the limit, the available rents are fully dissipated and the welfare loss associated with rent seeking equals the sum of the value of the rent rectangle and the deadweight loss triangle. This article shows that by eliciting expenditures to defend existing rents, attempts to reform the rent-seeking society cannot lower the social cost bill; they can only add to it. Hence, the only way to avoid the reformer's dilemma is to not grant monopoly rights in the first place.