Legitimate and illegitimate transfers: Dealing with "political" cost-benefit analysis

International Review of Law and Economics

Volumn 16, Issue 2, 1996, Pages 247-257

  Jones, Philip ^a   Cullis, John ^a  

^a NONE

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EID: 0030163315     PISSN: 01448188     EISSN: None     Source Type: Journal    
DOI: 10.1016/0144-8188(95)00021-6     Document Type: Article

References (53)

1. 1. F.S. McChesney, "Boxed in: Economists and benefits from crime," International Review of Law & Economics 13(1993):225; and J.L. Lewin and W.N. Trumbell, "Neither Boxed in nor Circular: A Reply to Professor McChesney," International Review of Law & Economics 13(1993):233.
2. 1. F.S. McChesney, "Boxed in: Economists and benefits from crime," International Review of Law & Economics 13(1993):225; and J.L. Lewin and W.N. Trumbell, "Neither Boxed in nor Circular: A Reply to Professor McChesney," International Review of Law & Economics 13(1993):233.
3. 2. Lewin and Trumbell maintain that rent-seeking considerations are insufficient to exclude gains from illegitimate transfers.
4. 3. J.G. Cullis and P.R. Jones, Public Finance and Public Choice (London: McGraw-Hill, 1992).
5. 4. W.A. Niskanen, "The Peculiar Economics of Bureaucracy," American Economic Review 57(1968):293. For a survey of this literature see J.G. Cullis and P.R. Jones, "The Economics of Bureaucracy," in The Growth of the Public Sector: Theories and International Evidence, ed. N. Gemmel (1993).
6. 4. W.A. Niskanen, "The Peculiar Economics of Bureaucracy," American Economic Review 57(1968):293. For a survey of this literature see J.G. Cullis and P.R. Jones, "The Economics of Bureaucracy," in The Growth of the Public Sector: Theories and International Evidence, ed. N. Gemmel (1993).
7. 5. A. Downs, An Economic Theory of Democracy (New York: Harper and Row, 1957).
8. 6. H.E. Klarman, "Application of Cost Benefit Analysis to Health Services: The Special Case of Technological Innovation," International Journal of Health Services 4(1974):326.
9. 7. M.W. Jones-Lee, The Value of Life: An Economic Analysis (London: Martin Robertson, 1976).
10. 8. D.W. Pearce and C.A. Nash, The Social Appraisal of Projects: A Text in Cost Benefit Analysis (London: Macmillan, 1981).
11. 9. See, in particular, E.J. Mishan Cost Benefit Analysis, 4th ed. (London: Unwin, Hyman, 1988).
12. 10. M.W. Jones-Lee, The Value of Life: An Economic Analysis, p. 15.
13. 11. Ibid.
14. 12. Criminals are not party to decision making on investment in law and order, but political representatives are involved in decision making.
15. 13. For example, S. Baker and C. Elliot, Readings in Public Sector Economics (Washington, D.C.: Heath and Co Lexingtion, 1990), note that Wicksell warns ". . . economists not to offer advice as if a benevolent dictator were listening."
16. 14. There are many comparative studies of private and public sector provision. See D. Mueller, Public Choice II (Cambridge: Cambridge University Press, 1989) for a survey.
17. 15. This assumption may not be realistic but it assists exposition.
18. 16. Rents do not exhaust all consumer surplus in the case illustrated.
19. 17. W.J. Samuels and N. Mercurio, "A Critique of Rent Seeking Theory," in Neoclassical Political Economy: The Analysis of Rent Seeking and DUP Activities, ed. D.C. Colander (1984).
20. 18. See, for example, G. Brennan and J.M. Buchanan, The Power to Tax: Analytical Foundations of Fiscal Constitutions (Cambridge: Cambridge University Press, 1980).
21. 19. J.L. Lewin and W.N. Trumbull, "The Social Value of Crime?" International Review of Law & Economics 10(1990):271.
22. 20. J.G. Cullis and P.R. Jones, "Does it Make Sense to Double Count? Problems in Assessing Rent Seeking Costs," Public Finance Quarterly 20(1992):378.
23. 21. R.A. Posner, "The Social Costs of Monopoly and Regulation," Journal of Political Economy 83(1975): 807.
24. 22. G. Tullock, "Efficient Rent Seeking," in Toward a Theory of the Rent Seeking Society, eds. J. Buchanan, R.D. Tollison, and G. Tullock (1980), considers a situation where ". . . individuals can figure out the correct strategy, if there is a correct strategy, and that they also assume that the other people will be able to figure it out, also" (p. 101). W.P. Rogerson, The Social Costs of Monopoly and Regulation: A Game Theoretic Analysis," The Bell Journal of Economics 13(1982):391, follows this approach, while J. Hirschleifer, "Conflict and Rent Seeking Success Functions: Ratio versus Difference Models of Relative Success," Public Choice 63(1989):101, suggests that relative success is determined by input differences.
25. 22. G. Tullock, "Efficient Rent Seeking," in Toward a Theory of the Rent Seeking Society, eds. J. Buchanan, R.D. Tollison, and G. Tullock (1980), considers a situation where ". . . individuals can figure out the correct strategy, if there is a correct strategy, and that they also assume that the other people will be able to figure it out, also" (p. 101). W.P. Rogerson, The Social Costs of Monopoly and Regulation: A Game Theoretic Analysis," The Bell Journal of Economics 13(1982):391, follows this approach, while J. Hirschleifer, "Conflict and Rent Seeking Success Functions: Ratio versus Difference Models of Relative Success," Public Choice 63(1989):101, suggests that relative success is determined by input differences.
26. 22. G. Tullock, "Efficient Rent Seeking," in Toward a Theory of the Rent Seeking Society, eds. J. Buchanan, R.D. Tollison, and G. Tullock (1980), considers a situation where ". . . individuals can figure out the correct strategy, if there is a correct strategy, and that they also assume that the other people will be able to figure it out, also" (p. 101). W.P. Rogerson, The Social Costs of Monopoly and Regulation: A Game Theoretic Analysis," The Bell Journal of Economics 13(1982):391, follows this approach, while J. Hirschleifer, "Conflict and Rent Seeking Success Functions: Ratio versus Difference Models of Relative Success," Public Choice 63(1989):101, suggests that relative success is determined by input differences.
27. 23. See, for example, J. Bhagwati and T.N. Srinivason, "Revenue Seeking: A Generalisation of the Theory of Tariffs," Journal of Political Economy 88 (1980): 1069, and J.N. Bhagwati and T.N. Srinivason, "Revenue Seeking: A Generalisation of the Theory of Tariffs - A Correction," Journal of Political Economy 90(1982):188.
28. 23. See, for example, J. Bhagwati and T.N. Srinivason, "Revenue Seeking: A Generalisation of the Theory of Tariffs," Journal of Political Economy 88 (1980): 1069, and J.N. Bhagwati and T.N. Srinivason, "Revenue Seeking: A Generalisation of the Theory of Tariffs - A Correction," Journal of Political Economy 90(1982):188.
29. 24. M.S. Quibria, "Neoclassical Political Economy: An Application to Trade Policies," Journal of Economic Surveys 3(1989):107. In the case of political lobbying this effect is obvious. In the case of rent-seeking activity by criminals, it may emerge via the technological innovations designed to combat theft, etc.
30. 25. X. de Vanssay and Z.A. Spindler, "Is Tax Reform in the Public Interest? A Rent Seeking Perspective," Public Finance Quarterly 22(1994):10.
31. 26. J.R. Lott and R.D. Roberts, "Why Comply? Onesided Enforcement of Price Controls and Victimless Crime Laws," Journal of Legal Studies 18(1989):411, with specific reference to illegal markets, argue that as participants, themselves, are left to enforce contracts in illegal markets, the use of coercion and ". . . violence imposes negative externalities on the rest of society. The gang warfare in 1988 over cocaine in Los Angeles claimed many victims unrelated to the drug trade." These external costs would make rent-seeking costs exceed rents.
32. 27. C. Paul and A. Wilhite, "Illegal Markets and the Social Costs of Rent Seeking," Public Choice 79(1994):105, argue that rent-seeking costs may be greater than both the value of the rents and any allocative ("Harberger") cost.
33. 28. E. Foster, "The Treatment of Rents in Cost Benefit Analysis," American Economic Review 71(1981): 177.
34. 29. A.T. Peacock, "An Economic Analysis of Economic Advice-Giving," Atlanta Economic Journal 16(1988).
35. 30. Ibid. p. 6. On a more recent occasion advice was sought on the future of the retirement pension in the U.K., Sir Alan Peacock commented on the need to remind politicians that the problem of finance of retirement was not solely one of pensions provision, for there were other services that the elderly availed themselves of as well as tax concessions. Politicians seemed happy to discount this observation because ". . . as any public choice analyst will know the government influences on the real income of the retired are not simply a reflection of the myopia of policymakers but of the substantial voting power of senior citizens." A. Peacock, "The Credibility of Economic Advice to Government," Economic Journal 102(1992):1220.
36. 30. Ibid. p. 6. On a more recent occasion advice was sought on the future of the retirement pension in the U.K., Sir Alan Peacock commented on the need to remind politicians that the problem of finance of retirement was not solely one of pensions provision, for there were other services that the elderly availed themselves of as well as tax concessions. Politicians seemed happy to discount this observation because ". . . as any public choice analyst will know the government influences on the real income of the retired are not simply a reflection of the myopia of policymakers but of the substantial voting power of senior citizens." A. Peacock, "The Credibility of Economic Advice to Government," Economic Journal 102(1992):1220.
37. 31. A. Downs, An Economic Theory of Democracy, (New York: Harper and Row, 1957).
38. 32. A. Boardman, A. Vining, and W.G. Waters II, "Costs and Benefits through Bureaucratic Lenses: Example of a Highway Project," (1993) Journal of Policy Analysis and Management 12(1993):532, argue that what constitutes "benefits" and "costs" in any CBA depends on the "bureaucratic lense" through which they are observed. A distinction is made between Analysts, Spenders, and Guardians. The perspective of an Analyst is that of "standard CBA." By comparison, the perspective of Spenders is oriented towards the interests of their constituents. Spenders will classify expenditure on constituents as benefits and regard expenditure by constituents as costs. Guardians are concerned with the control of financial flows. Therefore, they tend to see benefits as revenue inflows and costs as revenue outflows. The countervailing interests of Spenders and Guardians will not necessarily cancel out to insure that estimates used in a CBA are consistent with those of the Analyst.
39. 33. D. Wittman, "Why Democracies Produce Efficient Results," Journal of Political Economy 97(1989): 1395, illustrates how mechanisms within the political process may ensure competition.
40. 34. For example, C. Wolf Jr., "A Theory of Non-Market Failure: Framework for Implementation Analysis," Journal of Law and Economics 22(1979):101, provides a taxonomy of such failings.
41. 35. Even when constructed under "idealized" conditions they are likely to prove ineffective restraints on the indulgences of politicians. See R.G. Holcombe, The Economic Foundations of Government, (New York: New York University Press, 1994).
42. 36. In the U.K. the House of Commons agreed to two resolutions in 1974. First, that Members of Parliament be expected to make an oral declaration as to any personal interest in debates of the House or its committees. Second, that members' interests be entered on a Register of Members' Interests, which would be available for inspection by the public (J.A.G. Griffith, M. Ryle, and M.A.J. Wheeler-Booth, Parliament Functions Practice and Procedures, Sweet and Maxwell, 1989). James Callaghan, former Prime Minister, stressed the difficulties that vested interest can pose for decision making, saying of opposition Members of Parliament: "I have almost forgotton their constituencies, but I shall never forget their interest. I wonder sometimes who they represent? The constituents or their own friends' particular interest?" [3 July 1965, reported in A. Roth The Business Background of MPs, Parliamentary Profiles, London (1981) 25].
43. 36. In the U.K. the House of Commons agreed to two resolutions in 1974. First, that Members of Parliament be expected to make an oral declaration as to any personal interest in debates of the House or its committees. Second, that members' interests be entered on a Register of Members' Interests, which would be available for inspection by the public (J.A.G. Griffith, M. Ryle, and M.A.J. Wheeler-Booth, Parliament Functions Practice and Procedures, Sweet and Maxwell, 1989). James Callaghan, former Prime Minister, stressed the difficulties that vested interest can pose for decision making, saying of opposition Members of Parliament: "I have almost forgotton their constituencies, but I shall never forget their interest. I wonder sometimes who they represent? The constituents or their own friends' particular interest?" [3 July 1965, reported in A. Roth The Business Background of MPs, Parliamentary Profiles, London (1981) 25].
44. 37. There are many examples of this argument, but perhaps one of the best known is B. Weisbrod, "Income Redistribution Effects and Cost Benefit Analysis," in Problems in Public Expenditure Analysis, ed. S. Chase (1966).
45. 38. See, for example, M. Ricketts, "Rent Seeking Entrepreneurship, Subjectivism and Property Rights," Journal of Institutional and Theoretical Economics 143(1987):457.
46. 39. T.J. DiLorenzo, "Property Rights: Information Costs and the Economics of Rent Seeking," Journal of Institutional and Theoretical Economics 144(1988):318.
47. 40. We offer no comment on the "correct" policy direction. Our interest here is simply that the "correct" decision is said to be in dispute when comparing the results of a cost benefit analysis based on consumer sovereignty with that emerging from a "broader" assessment.
48. 41. P. De Grauwe, "Towards Monetary Union without the EMS European Policy," Economic Policy 19(1994):173.
49. 42. Ibid. p. 174.
50. 43. Lewin and Tumbrell may maintain their insistence that more is required for discussion of illegitimate transfers, and on this we offer no comment. Like the issue of equity weights in CBA this may call for stronger normative judgments appropriate in an Olympian CBA.
51. 44. For further examples, see B.R. Weingast, K.A. Shepsle, and C. Johnsen, "The Political Economy of Benefits and Cost: A Neoclassical Approach to Distribution Politics," Journal of Political Economy 89(1981):642 and D.R. Lee, "Monitoring and Budget Maximization in the Control of Pollution," Economic Inquiry 21 (1983):565.
52. 44. For further examples, see B.R. Weingast, K.A. Shepsle, and C. Johnsen, "The Political Economy of Benefits and Cost: A Neoclassical Approach to Distribution Politics," Journal of Political Economy 89(1981):642 and D.R. Lee, "Monitoring and Budget Maximization in the Control of Pollution," Economic Inquiry 21 (1983):565.
53. 45. For example, professional economists and others who compile CBAs may, themselves, be guilty of introducing their self-interest bias at any earlier stage.