08 September 2011

Bribes and rents

Here’s a bit of a twitter conversation I saw this morning:

@ModeledBehavior I prefer a politician who buys support with crooked land deals to one who does so by embracing obviously bad populist policies

@mattyglesias In a non-agricultural society, crooked land deals are probably the optimal form of corruption.

@ModeledBehavior Just transfer of rents right? In general, I'd prefer leaders who bring growth & good policy & skim off the top than populists

@mattyglesias Yeah, most corruption creates new rents. Shady land deals just transfer them.

I don’t know how serious they were. I thought there was a touch of humor there. It was cute.

But it’s worth saying: no, I don’t really think there’s any sense in saying shady land deals “just transfer rents”.

Sometimes you can see how corruption is the simple collection of a monopoly rent that’s inherent in the situation. Suppose I handle liquor licenses for the city. If I'm corrupt, I might ask for “speed money” from applicants to do my job promptly. “This usually takes 6 to 8 weeks, but if you grease the right palms around here your application finds its way to the top of the pile. I can take care of that for you.”

Economically, what's going in here is that my job is to provide a service that’s worth something, say $X, to your business. I’m supposed to do it for free. Instead, I try to extract as much of that $X as possible from you. Bwa ha ha. It's reprehensible, to be sure, but you can see how this is an economic rent. You’re only trapped and helpless because you want that $X and my department wants to give it to you, and nobody else is going to just hand you something worth $X for nothing. And note that even though I am corrupt, I still perform the same service an honest official would. I’m just being paid (out of your profits) to do it. From a certain simplistic economic point of view, what I'm doing is pretty benign.

I might get creative, though, and start carving out new ways to make money by abusing my power. Suppose I start telling restaurant owners if they don’t pay up, I’ll have them investigated for selling alcohol to minors. I’ll scrutinize their application until I find a mistake, and then I’ll reject it. I’ll investigate their employees. I’ll have them audited. Now I’m in the business of manufacturing harm. I’m an economic disaster.

So which is it when Rick Perry buys a plot of land for $300K and sells it back to a partner of the same developer for $1.15M, a profit of $850,000, six years later?

Now, maybe @mattyglesias and @ModeledBehavior were talking about some other “crooked land deal”. I can’t be sure.

But the answer is, “it doesn’t matter”. Three points:

  • The fact that it was a “land deal” does not tell you whether this was “just” a transfer of rents, or something worse, or even if there was a quid pro quo at all. How bad it is depends more on what the money bought than how it was delivered.

    Yglesias apparently sees just the payment in isolation, and calls it relatively harmless, which makes no sense to me. That’s only half of the transaction!

  • Ultimately, calling corrupt rent-collection benign is simplistic. The step from rent-collecting to rent-seeking is often small, so there’s a slippery slope. And in high offices the amount of damage you could do without even bothering to rent-seek is huge.

  • If you’re the governor of Texas, the kind of privileged access I would expect an $850,000 bribe to buy is not best modeled as a transfer of rents. Too many terms are missing from that equation.

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