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The Welfare Loss from Monopoly Re-visited: Rent Seeking and Protectionism

Received: 15 July 2021     Accepted: 27 July 2021     Published: 6 August 2021
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Abstract

In a 1954 paper, A. C. Harberger claimed that the welfare loss from monopoly in United States manufacturing was less than one tenth of one percent of national income over 1924-1928. This led to additional claims of low monopoly welfare loss and eventually to a counter-argument in favor of adding a rent-seeking cost equal to part or all of the economic profit to this loss. These arguments assumed a passive role for government. In this paper, by contrast, governments are active and seek to maximize their political support. The political support maximum then depends on the nature of the political system and, in particular, on how inclusive this system is. The same is true of the monopoly welfare loss, which becomes largely the social cost of rent seeking plus the social cost of protectionism—or of protecting existing profits by restricting investment that would increase competition in markets where these profits are earned. Protectionist measures lower innovation and the growth of total factor productivity, but can still be a good source of political support in a political system where inclusiveness is moderate to low. This can explain not only the existence of inefficiency and of large monopoly welfare loss, but also their persistence and the persistence of large differences in total factor productivity between nations.

Published in International Journal of Business and Economics Research (Volume 10, Issue 4)
DOI 10.11648/j.ijber.20211004.14
Page(s) 141-146
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2021. Published by Science Publishing Group

Keywords

Efficiency, Inclusiveness, Political Support, Rent Seeking

References
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[2] Aghion, Philippe, Heike Harmgart, and Natalia Weisshaar. 2008. Fostering Growth in Transition Economies. Ch. 3 of EBRD. Transition Report 2008: Growth in Transition. London: EBRD, November.
[3] Angelopoulos, Konstantinos, Apostolis, Philippopoulos, and Vanghelis, Vasillatos. 2009. The Social Cost of Rent Seeking in Europe. European Journal of Political Economy, 25 (3), 280-299. September.
[4] Bergson, Abram. 1973. On Monopoly Welfare Losses. American Economic Review, 63 (5), 853-70. December.
[5] Carson, Richard. 2020. Inclusiveness, Growth, and Political Support. Eastern Economic Journal, 46 (4), 557-575. October.
[6] Carson, Richard. 1975. On Monopoly Welfare Losses: Comment. American Economic Review, 65 (5), 1008-1014. December.
[7] Cowling, Keith and Dennis C. Mueller. 1978. The Social Costs of Monopoly Power. The Economic Journal, 88 (352), 727-748. December.
[8] Crafts, Nicholas and Pieter Woltjer. 2019. Growth Accounting in Economic History: Findings, Lessons and New Directions. Journal of Economic Surveys, Special Issue, 06 December.
[9] Freeland, Chrystia. 2012. Plutocrats: the Rise of the New Global Super-Rich and the fall of Everyone Else. New York: Penguin.
[10] Harberger, Arnold C. 1954. Monopoly and Resource Allocation. American Economic Review, 44 (2), 77-87. May.
[11] Krueger, Anne. 1974. The Political Economy of the Rent-Seeking Society. American Economic Review, 64 (3), 291-303, June.
[12] Laband, David and John Sophocleus. 2019. Measuring Rent Seeking. Public Choice, 181, 49-69. October.
[13] Laband, David and John Sophocleus. 1988. The Social Cost of Rent Seeking: First Estimates. Public Choice, 58 (3), 269-275. September.
[14] Lizzeri, Alessandro and Nicola Persico. 2001. The Provision of Public Goods under Alternative Electoral Incentives. American Economic Review, 91 (1): 225-255. January.
[15] Neumann, Manfred. 1999. Monopoly Welfare Losses in the Long Run. Empirica, 26 (234): 1-9. March.
[16] Posner, Richard. 1975. The Social Costs of Monopoly and Regulation. Journal of Political Economy, 83 (4), 807-828. August.
[17] Rhoades, Stephen A. 1982. Welfare Loss, Redistribution Effect, and Restriction of Output due to Monopoly in Banking. Journal of Monetary Economics, 9 (3), 375-387.
[18] Schmitz, James A. 2016. The Costs of Monopoly: A New View. Federal Reserve Bank of Minneapolis article, July 12, 2016.
[19] Schwartzman, David. 1960. The Burden of Monopoly. Journal of Political Economy, 68 (6): 627-630. December.
[20] Tullock, Gordon. 1967. The Welfare Costs of Tariffs, Monopolies, and Theft. Western Economic Journal, 5 (3), 224-232, June.
[21] Witt, Ulrich. 2002. Germany’s “Social Market Economy”: Between Social Ethos and Rent Seeking. The Independent Review, 6 (3), 365-375. Winter.
[22] Worcester, Dean A., jr. 1975. On Monopoly Welfare Losses: Comment. American Economic Review, 65 (5). 1015-1023. December.
Cite This Article
  • APA Style

    Richard Carson. (2021). The Welfare Loss from Monopoly Re-visited: Rent Seeking and Protectionism. International Journal of Business and Economics Research, 10(4), 141-146. https://doi.org/10.11648/j.ijber.20211004.14

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    ACS Style

    Richard Carson. The Welfare Loss from Monopoly Re-visited: Rent Seeking and Protectionism. Int. J. Bus. Econ. Res. 2021, 10(4), 141-146. doi: 10.11648/j.ijber.20211004.14

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    AMA Style

    Richard Carson. The Welfare Loss from Monopoly Re-visited: Rent Seeking and Protectionism. Int J Bus Econ Res. 2021;10(4):141-146. doi: 10.11648/j.ijber.20211004.14

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  • @article{10.11648/j.ijber.20211004.14,
      author = {Richard Carson},
      title = {The Welfare Loss from Monopoly Re-visited: Rent Seeking and Protectionism},
      journal = {International Journal of Business and Economics Research},
      volume = {10},
      number = {4},
      pages = {141-146},
      doi = {10.11648/j.ijber.20211004.14},
      url = {https://doi.org/10.11648/j.ijber.20211004.14},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijber.20211004.14},
      abstract = {In a 1954 paper, A. C. Harberger claimed that the welfare loss from monopoly in United States manufacturing was less than one tenth of one percent of national income over 1924-1928. This led to additional claims of low monopoly welfare loss and eventually to a counter-argument in favor of adding a rent-seeking cost equal to part or all of the economic profit to this loss. These arguments assumed a passive role for government. In this paper, by contrast, governments are active and seek to maximize their political support. The political support maximum then depends on the nature of the political system and, in particular, on how inclusive this system is. The same is true of the monopoly welfare loss, which becomes largely the social cost of rent seeking plus the social cost of protectionism—or of protecting existing profits by restricting investment that would increase competition in markets where these profits are earned. Protectionist measures lower innovation and the growth of total factor productivity, but can still be a good source of political support in a political system where inclusiveness is moderate to low. This can explain not only the existence of inefficiency and of large monopoly welfare loss, but also their persistence and the persistence of large differences in total factor productivity between nations.},
     year = {2021}
    }
    

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Author Information
  • Department of Economics, Carleton University, Ottawa, Canada

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