Suppose a firm, like Comcast Cable, spends a great deal of money to convince a local governement that it should be the only cable provider of a region. Or a union, like the UAW, spends a great deal of money lobbying the government to create legislation granting unions special bargaining rights. These examples are created by A. logrolling. B. rent seeking. C. regulatory capture. D. regressive taxation.
The correct answer and explanation is:
The correct answer is B. rent seeking.
Rent seeking occurs when individuals or firms spend resources to influence government policies or regulations to gain economic advantages without creating new wealth or value. Instead of competing through innovation or improved products, rent seekers try to use political power to secure special benefits like monopoly rights, subsidies, or regulations that limit competition.
In the example of Comcast Cable spending money to convince a local government to become the sole cable provider, the firm is attempting to gain a monopoly through political influence rather than by offering better service or lower prices. This restricts competition and allows the firm to earn higher profits than it would in a competitive market.
Similarly, when a union such as the United Auto Workers (UAW) spends money lobbying for legislation that grants unions special bargaining rights, it is seeking to improve its negotiating power through government action. This may lead to benefits for union members, but it is achieved through political influence rather than increased productivity or efficiency.
Rent seeking is costly for society because it diverts resources away from productive activities like research, development, and improving goods and services. Instead, money and effort go toward lobbying, legal battles, or political campaigns aimed at securing favorable regulations or laws. These efforts do not increase overall economic output but can create inefficiencies and reduce competition.
Regulatory capture (option C) is related but more specific. It happens when regulatory agencies become dominated by the industries they regulate, resulting in policies that favor those industries. Logrolling (option A) refers to legislators trading votes to pass laws benefiting each other’s interests. Regressive taxation (option D) is a tax system where lower-income people pay a higher proportion of their income in taxes compared to wealthier people, which is unrelated to the examples given.
Therefore, the behavior described fits best with rent seeking, where groups invest in political influence to gain special economic advantages.