In recent years there has been increasing interest in the literature in the theory of rent seeking. This theory, which was initiated by Tullock (1967), Posner (1975) and Krueger (1974), has since been developed in various directions by Bhagwati and Srinivasan (1980), Tullock (1980), Hillman and Katz (1984) and others.
Yet, despite the extensive interest in rent seeking, it appears to have been left unemphasized that rent, being a transfer, has two effects: First, as has been well recognized and researched, it constitutes a benefit to those to whom the rent is awarded. Second, it imposes a cost on those from whom the rent is collected. Thus, for example, a tariff will cause not only a transfer to some industries but also a transfer away from other industries. Similarly a monopoly franchise to a producer of a certain intermediate good constitutes a transfer to the monopolist and a cost to firms using this good in their production process.
To the extent that a particular group may suffer a loss as a result of this transfer such a group may be expected to expend resources in an attempt to avoid paying this loss. (Tollison, 1982, mentions this possibility with regard to consumer groups, but does not explore it in any detail.) Thus, we do indeed observe groups organizing and fighting wealth transfers; for example, car manufacturers fighting tariffs on steel imports or foreign car dealers lobbying against quotas of Japanese cars etc. Such rent avoiding activity must then be added to rent seeking activity in order to obtain a true estimate of the social costs of the rent.
Furthermore, it should be added that in many cases the occurrence of 'dead weight' losses associated with the introduction of rules bringing about rents will cause losing groups to incur costs exceeding the benefits to gaining groups. For example, as is welt known, the imposition of a tariff or a quota * We would like to thank Gordon Tullock and an anonymous referee of this journal for their helpful comments and suggestions.