Rentier state rents

Rent-seekers of government-provided benefits will in turn spend up to that amount of benefit in order to gain those benefits, in the absence of, for example, the collective-action constraints highlighted by Olson. This makes it hard for politicians to demand large bribes from rent-seekers.

Tullock paradox[ edit ] Tullock paradox refers to the apparent paradoxdescribed by Tullock, on the low costs of rent-seeking relative to the gains from rent-seeking.

Dependent upon it as a source of income, rentier states may generate rents externally by manipulating the global political and economic environment. If "buying" a favorable regulatory environment seems cheaper than building more efficient production, a firm may choose the former option, reaping incomes entirely unrelated to any contribution to total wealth or well-being.

Feldman [12] Outcomes[ edit ] Consequently, in these resource-rich rentier states there is a challenge to developing civil society and democratization. Hence, theorists such as Beblawi and Luciani conclude that the nature of rentier states provides a particular explanation for the presence of authoritarian regimes in such resource rich states.

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. The concept of rent-seeking would also apply to corruption of bureaucrats who solicit and extract "bribe" or "rent" for applying their legal but discretionary authority for awarding legitimate or illegitimate benefits to clients.

Possible consequences[ edit ] From a theoretical standpoint, Rentier state rents moral hazard of rent-seeking can be considerable. Olson argued that countries that have a collapse of the political regime and the interest groups that have coalesced around it can radically improve productivity and increase national income because they start with a clean slate in the aftermath of the collapse.

Hazem Beblawi and Giacomo Luciani have argued that this could create a "rentier mentality," [4] while political scientist Fareed Zakaria has posited that such states fail to develop politically because, in the absence of taxes, citizens have less incentive to place pressure on the government to become responsive to their needs.

Studies of rent-seeking focus on efforts to capture special monopoly privileges such as manipulating government regulation of free enterprise competition. Both Dougan and Tullock affirm the difficulty of finding the cost of rent-seeking.

Beblawi and Luciani highlight the case of Egypt whose receipt of financial aid from oil-rich neighbours declined significantly after Camp Davidand money going instead to Iraq, Syria and the PLO who were considered more assertive.

It can also be applied to nations which trade on their strategic resources, such as an important military base. Oil is in such demand that it does not require adherence to free market principles and economic freedom based on rule of law, security, a fair and transparent judiciary and property rights.

Rentier state

Such manipulation may include monopoliestrading restrictions, and the solicitation of subsidies or aid in exchange for political influence or conversely the solicitation of loans in exchange for the reserve currency, e.

The chance of conflict and rent dissipation in our model is highest for intermediate levels of resource rents, where the government cannot make credible commitments to the opposition groups. For example, where the government is the largest and ultimate employer, the bureaucracy is frequently bloated and inefficient — and indeed comes to resemble a rentier class in society.

Rentier state rents is nothing productive about the chain or the collector. This role must be separated from the role of a property developerwhich need not be the same person. Regulatory capture is a related term for the collusion between firms and the government agencies assigned to regulate them, which is seen as enabling extensive rent-seeking behavior, especially when the government agency must rely on the firms for knowledge about the market.

This leads to a situation where citizenship becomes a financial asset. This can be seen for the region as a whole — so some states have been able to exploit location rent due to their strategic location, for example, as sites for military bases.

Previous article in issue. Only a small proportion of the working population is actually involved in the generation of the rent. Dougan says that the "total rent-seeking costs equal the sum of aggregate current income plus the net deficit of the public sector". The high profits of the illegal drug trade are considered rents by this definition, as they are neither legal profits nor the proceeds of common-law crimes.

Rentier state theory has been one of several advanced to explain the predominance of authoritarian regimes in the Middle East and the apparent lack of success of democracy in the region. However, some rent-seeking competition is illegal — such as bribery or corruption.

Taxi licensing is a textbook example of rent-seeking.

What is a rentier state?

Allegedly, resource rents attract rent-seekers, which destabilize society. Rent-seeking implies extraction of uncompensated value from others without making any contribution to productivity.

In this case there are very high levels of rent-seeking with very low levels of output. This results in a sub-optimal allocation of resources — money spent on lobbyists and counter-lobbyists rather than on research Rentier state rents developmenton improved business practices, on employee trainingor on additional capital goods — which retards economic growth.

Rent, by contrast with these two, is obtained when a third party deprives one party of access to otherwise accessible transaction opportunities, making nominally "consensual" transactions a rent-collection opportunity for the third party.

However, there is a large literature on how so-called rentier states manage to pacify opposition groups by handing out special favors. The total of wastes from rent-seeking is then the total amount from the government-provided benefits and instances of tax avoidance valuing benefits and avoided taxes at zero.

Thus organizations value rent-seeking over productivity. The economy relies on a substantial external rent — and therefore does not require a strong domestic productive sector. It is most frequently applied to states rich in highly valued natural resources such as petroleum but can also include states rich in financial instruments such as a reserve currency.

Similarly, taxpayers lobby for loopholes and will spend the value of those loopholes, again, to obtain those loopholes again absent collective-action constraints. This viewpoint sees "profit" as obtained consensually, through a mutually agreeable transaction between two entities buyer and sellerand the proceeds of common-law crime non-consensually, by force or fraud inflicted on one party by another.efforts, resource rents provide the state with an alternative source of public revenue that is akin to an externally-generated “windfall” (MahdavyBeblawi ).

Empirically, in fact, resource rents tend to displace other, more-difficult-to-collect forms. The Rentier State in Africa: Oil Rent Dependency & Neocolonialism in the Republic of Gabon [Douglas A.

Yates] on *FREE* shipping on qualifying offers. This is a detailed study of the political and economic condition of the Republic of Gabon, focusing on the years of the oil boom (). The rise to power of Leon M'Ba and the. The response earned no point for the statement that a “rentier state is a state in which the government gets help from other nations.” One point was earned for identifying Nigeria as a rentier state, but no point.

Rent seeking and regime stability in rentier states explain evidence on the non-monotonic effect of resource rents on conflict. How the rent-seeking view of resource rents may lead to the rentier state view. Resource rents turn from a source of conflict to a promoter of peace and stability.

Activation of more groups in conflict makes. OIL AND THE RENTIER STATE: IRAN’S CAPITAL FORMATION, ¹ Sousan Badiei and Cyrus Bina California State Polytechnic University, Pomona and University of Minnesota, Morris.


What do you understand by the term the rentier state How useful is this concept in explaining the politics of the oil-producing states.

Rentier state rents
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