Friday, October 21, 2011

Why has rent-seeking increased?

Corruption is arguably the dominant public policy issue being debated in India today. The popular lament is about an alarming increase in corruption. The graphic below highlights a part-philosophical, part-economics explanation.



The dynamics of philosophy and economics have combined to mis-align incentives badly to favor those seeking rents. The returns from rent-seeking have surged, whereas the risk of getting caught has come down. Therefore, naturally, the rate of return, per unit of risk assumed, has exploded. Further, the self-respect quotient among public officials has declined precipitously (partly because the strong stigma associated with rent-seeking has long since disappeared and also since rent-seeking has got closer to the norm). So is there any surprise at the dramatic increase in corruption?

2 comments:

Anonymous said...

Seems to be an intuitive explanation for the increase in corruption.

Didi the risk of getting caught change ? The records on the number of cases does not support this as they remain the same year on year.

I think that the size of the pie has increased, thereby making the magnitude higher.

More people seem to be indulging in corruption due to increased felt needs, that you had mentioned in the new poverty definition.

I am not sure if self respect has come down.

gulzar said...

anon thanks. agree it is an intuitive explanation

assuming that the number of rent-seeking transactions have increased, and since the number of cases detected have remained same, it is only natural that the risk of getting caught has gone down (or alternatively, the return per unit of risk assumed has increased).

abt why the rents have increased, there are many factors. the size of pie going up is certainly one factor, new definition of poverty etc

why do I say self respect has gone down? just consider the stigma associated with being accused of corruption among govt officials. nowadays, atleast in the environment i inhabit, the stigma is long gone. why it is so? is it because character has declined? or is it in keeping with similar inflation everywhere? or something else?

anyways, it cannot be denied that self respect is a scarcer commodity in public life.