We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
Rent seekers who demand government production: Bureaucratic output and the price of complements.
- Authors
Benson, Bruce L.; Mitchell, Jean M.
- Abstract
Many goods and services produced by government bureaus are sold at prices which do not maximize net revenues (maximize profits or minimize losses). Indeed, bureaucratic institutions typically create incentives to expand production beyond that which would maximize net revenues. Furthermore, many of the products sold by government bureaus are highly complementary to privately produced goods and services. If a bureau's output is not priced to maximize net revenues, then private sellers of various complements may be in a position to extract rents by adjusting their prices. This paper explores the implications of bureaucratically generated rents for privately produced complements. First, rent seeking can materialize when private sector interests apply pressure for expanded bureau production and lower bureau prices. Second, if the bureau does expand its production capacity beyond the net revenue maximizing level, and if a private producer obtains exclusive rights to supply complements, then the extraction of rents will result in an inefficient mix of resources in bureaucratic production. The basis of the inefficiency is not the reason often given, however. Rather, inefficiencies arise because the actual level of use is less than that which the 'bureaucratic plant' was constructed to produce due to the relatively high price of the complementary services.
- Subjects
RENT subsidies; GOVERNMENT agencies; REVENUE; PRICE levels; INDUSTRIAL capacity
- Publication
Public Choice, 1988, Vol 56, Issue 1, p3
- ISSN
0048-5829
- Publication type
Article
- DOI
10.1007/BF00052066