William F. Shughart

Private school enrollment and public school performance

Federal, state, and local expenditures for public education amounted to

Free Entry and Efficient Rent-Seeking

184 billion, or

Logic of Collective Action

4,538 per pupil, in 1987-88 (Lieberman, 1989: 29). At the same time, educational achievement in the United States, whether measured in terms of student performance on standardized tests, literacy rates, or other dimensions of learning, has been stagnant for a decade or more (National Commission on Excellence in Education, 1983). As a result, public concern with public education has reached a level not seen since the Soviet Union launched its Sputnik satellite in 1957. Calls for educational reform are rampant in many states, with proposals being advanced for increasing teacher salaries, implementing merit pay for teachers, adopting more stringent teacher training and certification requiremens, and introducing various other initiatives designed to improve the quality of education delivered by the public schools. Experiments with introducing choice into the public education process are also beginning to be undertaken. In 1987, for example, Minnesota implemented a plan allowing students to enroll at any public school within the state. Similarly, public school officials in Boston are considering a proposal that would divide the city into three autonomous zones and allow elementary and middle school students to attend any school within their zone of residence (Kelly, 1990). All such experiments are designed to improve the quality of public education by weakening the monopoly power of local school districts. The premise of this approach to educational reform is that by allowing greater freedom of

ON ETHNIC CONFLICT AND THE ORIGINS OF TRANSNATIONAL TERRORISM

This paper concerns rent seeking and the extent to which rents are dissipated under various circumstances. Gordon Tullock’s (1967) insight that expenditures made to capture an artificially created transfer represent a social waste suggested that the cost to the economy of monopoly and regulation is greater than the simple Harberger (1954) deadweight loss. Indeed, under Tullock’s original formulation and in the extensions of his work by Krueger (1974) and Posner (1975), rents are exactly dissipated at the social level (

Efficient rents 2 free entry and efficient rent seeking

1 is spent to capture

On the Incentives of Judges to Enforce Legislative Wealth Transfers

1), so that the total welfare loss from such activities is equal to the Harberger triangle plus the rectangle of monopoly profits.

Preliminary Evidence on the Use of Inputs by the Federal Reserve System

What are the common wages of labor depends every where upon the contract usually made between those two parties, whose interests are by no means the same. The workmen desire to get as much, the masters to give as little as possible. The former are disposed to combine in order to raise, the latter in order to lower the wages of labor.

Educational achievement and the cost of bureaucracy

Using the ITERATE dataset, we explore the origins of transnational terrorist activity, from 1982 through 1997, in 118 countries. We model terrorism, not as a function of a nation’s ethnic, religious or linguistic fractionalization, but as an independent measure of perceived ethnic tensions. When we control for institutional quality, evidence that political rights and civil liberties mitigate the terrorism‐producing effects of ethnic tensions exists only since 1990. Economic freedoms, on the other hand, robustly reduce the number of terrorist attacks originating in ethnically tense societies.

Demand fluctuations and firm heterogeneity

Concluding remarksIn the competition for a monopoly right in which the number of bidders is fixed, Tullock and others have found the value of the resources spent in the aggregate to capture the transfer to be sometimes less than and sometimes greater than the value of the monopoly. We think this approach to be incomplete since it leaves unanswered the question of what determines the number of individuals who will vie for the right to be the monopolist. It is unsatisfactory to imagine, for example, that the franchisor sets the number of contestants. One could then foresee that rent seeking would arise to influence the permissible number of bidders, and this merely moves the rent-seeking dissipation question one step back.Our approach has been to extend these models in two ways. First, for a given number of active rent seekers, the monopoly right is granted according to the contest model developed by Nalebuff and Stiglitz (1983). This model clearly reveals that overdissipation of monopoly rents generally occurs only when there is some fixed cost of effort — or what amounts to the same thing, when active participation requires a nonrefundable entry fee. According to the contest model of granting rents, the extent to which rents are dissipated depends positively on the number of active rent seekers.Second, since expected profit in the contest is generally negative beyond some number of contestants less then the potential number of contestants, we construct an economic model of the entry decision. To avoid Tullocks ‘paradox of the liar’ — the absence of a symmetric pure-strategy equilibrium — our potential rent seekers adopt mixed entry strategies. We show that there is a symmetric mixed-strategy zero-profit equilibrium in which each of N potential rent seekers actively engages in the rent-seeking contest with probability p. Thus, the actual number of active rent seekers is a draw from the binomial distribution with parameters N and p. For the expected number of contestants, Np, rents are exactly and fully dissipated. Over- and underdissipation of monopoly rents are possible, but only ex post.The implications of our analysis are straightforward. First, when there are no restrictions on the number of individuals who may vie for the right to capture an artificially created transfer, entry will occur, and resources will be spent up to the point where the expected net value of the transfer is zero. Such competition leads to exact dissipation of the present value of the flow of rents associated with the transfer, and in static terms, makes the social cost of the monopoly equal to the value of the Tullock trapezoid. Second, even if entry is limited, overbidding for the franchise will in general not occur, the value of the Tullock trapezoid sets an upper limit on the social cost of monopoly.The result that rents are fully dissipated depends critically on the assumption of risk neutrality. While we have not analyzed the case of risk aversion completely, several predictions about the characteristics of equilibrium appear straightforward. First, if the marginal contestant is risk averse, then setting net expected utility equal to zero implies that in the limit the monetary value of the rents will not be fully dissipated. Moreover, the extent to which rents are dissipated will be less the greater the degree of risk aversion, the smaller the value of the appropriable rents relative to initial wealth, and the higher the fixed cost of entry (see Hillman and Katz, 1984: 107). Second, the extent of rent dissipation will also depend on the assumptions made concerning the supply of rent seekers and their risk aversion distribution. For example, there may be a large enough pool of potential rent seekers with zero risk aversion that the equilibrium number of active rent seekers will all be risk neutrál. In this case all rent will be dissipated expectationally. Third, and most importantly, with risk aversion as with risk neutrality, overdissipation will not be observed ex ante.Finally, the theory of rent seeking, as exposited here and elsewhere, puts considerable pressure on the argument that monopoly promotes a transfer of wealth from consumers to owners of monopoly firms (Comanor and Smiley, 1975). As Posner (1975: 821) observed, rent seeking implies that monopoly profits are dissipated, not transferred. This argument is correct as far as it goes. Only it does not go far enough, and it would carry us well beyond the scope of this paper to present a careful analysis of the impact of rent seeking on the level and distribution of wealth. Suffice it to say here that the effect of rent seeking on the level and distribution of wealth will be a function of the mechanism used to assign rents in a society, attitudes toward risk, comparative advantages in rent seeking, and so on (Higgins and Tollison, 1984).

Instant winners: Legal change in transition and the diffusion of state lotteries*

THE relative independence of the judiciary in the American political system is taken for granted by both its critics and its defenders. Most would agree that the courts are effectively insulated from daily politics as a consequence of constitutional provisions that tend to reduce the ability of other government branches to influence their decisions. At the federal level, for example, judges are given life tenure and can only be removed by means of impeachment; at the state level, most judges serve for more limited periods but generally have a high level of security of office because they are very difficult to remove from the bench prior to the expiration of their terms. Both state and federal justices face heavy sanctions in cases of detected corruption, and it is therefore not surprising that most observers accept that bribery plays a negligible role in the process of judicial decision making. There are two major noneconomic views concerning judicial independence. The independence of the judiciary is sometimes portrayed as necessary to ensure that this branch of government functions as an effective counterweight to the legislative and executive branches. Put crudely, the role of the judiciary is to protect society from unconstitutional actions by the other branches, and judges are motivated in this pursuit by concern