The positive evils and dangers of the representative, as of every other form of government, may be reduced to two heads: first, general ignorance and incapacity, or, to speak more moderately, insufficient mental qualifications, in the controlling body; secondly, the danger of its being under the influence of interests not identical with the general welfare of the community. (Italics in original)
John Stuart MillIn Chapter 12 we discussed a model of political competition in which politicians provide policies or legislation to win votes, and citizens and interest groups provide votes. From the discussion up to this point, it seems reasonable to think that the legislation consists of either public goods with characteristics that appeal to given groups of voters or income transfers from one sector of the population to another. The latter might be a tax loophole benefiting a particular group coupled with a rise in the average tax rate to make up for the revenue lost through the loophole. Income can be transferred from one group to another by other, more subtle means, however.
The government can, for example, help create, increase, or protect a group's monopoly position. In so doing, the government increases the monopoly rents of the favored groups at the expense of the buyers of the groups' products or services. The monopoly rents that the government can help provide are a prize worth pursuing, and the pursuit of these rents has been given the name of rent seeking.
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