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The social costs of rent seeking are generally evaluated with respect to rent dissipation. A common assumption is complete rent dissipation so that the value of a contested rent is the value of social loss. When rent seekers earn taxable income, there is interdependence between the social cost of rent seeking through rent dissipation and the excess burden of taxation. Through the addition of substitution to rent seeking beyond leisure, rent seeking increases the excess burden of taxation under risk neutrality when leisure is non-inferior. We derive a condition for rent seeking to increase the excess burden of taxation under risk aversion. Our conclusion is that, when rent seekers can earn taxable income, rent seeking is more socially costly than is inferred from contest models alone, because of an increased excess burden of taxation.

The social costs of rent seeking and the excess burden of taxation have been studied and evaluated independently. We show that, when rent seekers earn taxable income, there is interdependence between the two types of social losses. Rent seeking increases the excess burden of taxation under risk neutrality when leisure is non-inferior. We derive a condition for rent seeking to increase the excess burden of taxation under risk aversion. When rent seekers can earn taxable income, rent seeking is more socially costly than is inferred from contest models alone, because of an increased excess burden of taxation. [Copyright Elsevier B.V.]

We draw on the background of regional and local governments in China to identify the source of endemic corruption in the behavior of officials in government bureaucracies. When personal advancement in a bureaucracy involves payment of bribes to superiors, corruption is the consequence of the need to finance the bribes. In order to pay the bribes, government officials need to receive bribes, which are sought from subordinates in the government bureaucracy and from private individuals. All individuals are not, of course, equally corrupt or corruptible and merit is also a basis for advancement. However, corruption is endemic if the heads of government bureaucracies are corrupt in the procedures and criteria for personal advancement in the government bureaucracy. [Copyright Elsevier B.V.]

ABSTRACTThe modified theory of the Illyrian firm was developed, in part, to correct a perversity exhibited by the traditional theory of the Illyrian firm — that output rises in response to a fall in output price or a rise in fixed costs. We show that while this revised model has solved the problem for the short‐run the problem remains in the long‐run, and this long‐run perversity may have important policy implications for the short‐run as well. We also show that the under‐production problem associated with the traditional LMF is mitigated (and perhaps even reversed) in the modified LMF.