Tolluck's Paradox

"Now, Joe, I think you'd better get back into that Senate and keep those senators lined up."
--James Taylor (Mr Smith Goes to Washington)

Tullock's (1967) seminal work explained how self-interested parties incur costs in pursuit of rents (i.e., benefits gained from the efforts of someone else) beyond the traditional profit maximizing framework. His insights provided a theoretical framework for making sense of special interest group actions to obtain political favor from from policymakers. This has become part of what has become known as 'public choice economics.'

Tullock (1980) later developed what has become known as Tullock's Paradox. In regimes where the gains to be obtained from rent-seeking are high, why are the costs associated with rent-seeking behavior (e.g., lobbying, bribes, campaign donations) often so low? For example, a $10 million slice of pork might cost a special interest group only $100,000 (one percent of the 'rent') in payouts to politicians.

Why are the costs so low relative to prospective payoff?

Various explanation have been offered:

1) Voters might prefer their politicians to be immune from temptation of granting special priviledge. They might screen candidates for moral capacity prior to voting and punish in future elections those politicians who subsequently engage in the market for political favor.

2) Competition among politicians selling political favor lowers the cost to special interest groups that want to buy favor.

3) Purchasing political favor involves some uncertainty. Politicians may renege on a deal, leaving a special group out in the cold with no legal recourse. Because of the risk involved, political favor trades at a discount.

References

Tullock, G. 1967. The welfare costs of tariffs, monopolies and theft. Western Economic Journal, 5: 224-232.

Tullock, G. 1980. Efficient rent-seeking. In J.M. Buchanan, G. Tollison, and G. Tullock (eds.), Toward a theory of the rent-seeking society, 97-112. College Station, TX: Texas A&M University Press.