Rent-seeking describes activities aimed at capturing economic rent by manipulating the social or political environment, rather than by creating new wealth. Common examples include lobbying for government grants, subsidies, or regulations that create barriers to entry for competitors, thereby securing monopoly profits.

Rent-Seeking

Lobbying is the act of attempting to influence decisions made by government officials, such as legislators or members of regulatory agencies. It is a primary activity undertaken by special interest groups to advocate for their specific concerns and objectives within the political process.

Lobbying

Cronyism is the practice of awarding jobs, contracts, and other advantages to friends, family, or trusted colleagues, particularly in politics and business, without proper regard for their qualifications. This form of favoritism distorts competition and leads to inefficient resource allocation and corruption.

Cronyism

Regulatory capture is a form of government failure that occurs when a regulatory agency, originally created to act in the public interest, instead advances the commercial or political concerns of the special interest groups that dominate the industry or sector it is charged with regulating.

Regulatory Capture

The widespread existence of rational ignorance among the general public creates an opportunity for special interest groups to exert disproportionate political influence. These groups are highly motivated and informed on specific issues that offer them concentrated benefits. They can lobby for policies that favor them, knowing the costs are widely dispersed among a public that lacks the incentive to become informed and organize in opposition.

Influence of Special Interests due to Rational Ignorance

Special interest groups are organizations of individuals or businesses with common interests that seek to influence public policy and resource allocation in their favor. They often engage in lobbying and campaign contributions to gain access to policymakers, which can lead to outcomes that benefit the group's narrow interests at the expense of the broader public.

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Public choice theory applies economic principles, particularly those of rational choice and self-interest, to analyze the behavior of voters, politicians, and government officials within the political process. It examines how these individual incentives shape collective decisions and policy outcomes, often challenging the assumption that government actions are solely aimed at maximizing public welfare.

Public Choice Theory

The Median Voter Theorem is a model of voting that posits that in a majority-rule system with single-peaked preferences, the political outcome will reflect the preferences of the median voter. This implies that candidates and parties will often converge toward the political center to capture the vote of this pivotal individual.

Median Voter Theorem

Arrow's Impossibility Theorem, also known as the General Possibility Theorem, demonstrates that no ranked-choice voting system can be designed that always satisfies a set of five reasonable fairness criteria, such as non-dictatorship and independence of irrelevant alternatives. This suggests inherent difficulties in aggregating individual preferences into a single, coherent social preference.

Arrow's Impossibility Theorem

Logrolling, or vote trading, is the practice in which politicians agree to vote for each other's unrelated legislative proposals. This allows for the passage of bills that may only benefit concentrated special interests but whose costs are dispersed among all taxpayers, potentially leading to inefficient government spending.

Logrolling (Vote Trading)

Special Interest Groups (Political Economy)

Political myopia, or short-termism, describes the tendency of policymakers to favor projects with immediate, visible benefits and deferred costs, over projects with long-term benefits but immediate costs. This bias is often driven by the electoral cycle, as politicians prioritize policies that will be popular with voters in the near future to improve their chances of re-election, even if these policies lead to inefficient or detrimental outcomes in the long run.

Political Myopia (Short-Termism)

The paradox of voting, also known as Downs' paradox, highlights a contradiction in rational choice theory as applied to voting. It posits that for a rational, self-interested individual, the costs associated with voting (such as time spent registering, researching, and going to the polls) will almost always exceed the expected benefits. The expected benefit is calculated by multiplying the value of one's preferred candidate winning by the probability that one's single vote will be the deciding factor, a probability that is infinitesimally small in most elections.

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