Tullock paradox

The term Tullock paradox refers to the apparent paradox first observed by the public choice economist Gordon Tullock on the low costs of rent-seeking relative to the gains from rent-seeking.^[1][2][3][4] The paradox is basically that rent-seekers seeking political favors can usually bribe politicians to give them the favors at a cost much lower than the value of the favor to the rent-seeker. For instance, a rent seeker who hopes to gain a billion dollars from a particular political policy may need to bribe politicians only to the tune of ten million dollars, which is about 1% of the gain to the rent-seeker.

Explanations

Three major explanations have been offered for the Tullock paradox:^[2]

1. Voters may punish politicians who take large bribes, or live lavish lifestyles. This makes it hard for politicians to demand large bribes from rent-seekers.
2. Competition between different politicians eager to offer favors to rent-seekers may bid down the cost of rent-seeking.
3. Lack of trust between the rent-seekers and the politicians, due to the inherently underhanded nature of the deal and the unavailability of both legal recourse and reputational incentives to enforce compliance, pushes down the price that politicians can demand for favors.

References

1. Tullock, Gordon (1980), "Efficient rent-seeking", in Buchanan, J.; Tollison, R.; and Tullock, G., Toward a theory of the rent-seeking society, College Station: Texas A&M Press, pp. 97–112
2. "Tullock Paradox". MRUniversity.
3. Cowen, Tyler (2006-04-04). "The Tullock paradox: why is there so little lobbying?". Marginal Revolution. Retrieved 2012-11-24.
4. Connes, Richard. "Loss Aversion and the Tullock Paradox".