Controls, corruption, and competitive rent-seeking in LDCs

The paper establishes that equality between the average return of factors engaged in rent-seeking and those in productive activity does not generally imply equality between the efficiency losses from rent-seeking and the rents themselves; such equality is often assumed in the literature. A stylized CGE-model is used to illustrate the sensitivity of the estimated losses to the specification of the rent-seeking mechanism. It also illustrates the interdependence between the effects of taxes or subsidies and rent-seeking. For example, when rent-seeking involves post-secondary graduates competing for government jobs which yield incomes from corruption, the efficiency losses are affected by subsidies to education