Rent Seeking and Pecuniary Externalities Rent seeking is a particular externality problem I can bear a cost to transfer from you to me The transfer neither increases nor decreases efficiency,but The cost of doing it decreases efficiency Why theft is a bad thing A pecuniary externality is an externality that does not cause inefficient actions A's action causes a transfer from B to C C's benefit just balances B's loss So A's net benefit is the same as the net benefit for A+B+C So A has the right incentive If the transfer was from B to A,A would have the wrong incentive Getting us back to rent seekingRent Seeking and Pecuniary Externalities • Rent seeking is a particular externality problem • I can bear a cost to transfer from you to me • The transfer neither increases nor decreases efficiency, but • The cost of doing it decreases efficiency • Why theft is a bad thing • A pecuniary externality is an externality that does not cause inefficient actions • A’s action causes a transfer from B to C • C’s benefit just balances B’s loss • So A’s net benefit is the same as the net benefit for A+B+C • So A has the right incentive • If the transfer was from B to A, A would have the wrong incentive • Getting us back to rent seeking