Exploring Rent Seeking

6. The topic of rent seeking has some interesting things to say about the efficiency of theft. It may seem shocking, but at first glance, there is no economic cost to theft. If, for example, a thief steals $1000 from you, there is no change in value in the system. You have lost value, but it is still there, only in someone else's pockets. To make a case against theft on the grounds of economic efficiency, we need to go deeper.

a) A burglar steals goods that you value at $1000, but he can only sell them for $500. Explain why his actions now result in economic inefficiency.
b) To prevent burglars from stealing, you and all your neighbors install locks that cost $100. Explain why such a response makes theft economically inefficient.
c) Suppose that the thief treats crime as a business. Instead of doing honest work, he steals. Explain why making crime a business instead of a hobby makes it economically inefficient.
d) If crime is economically inefficient, can a thief find that crime is a profitable occupation?

(Comment: Do you not like the rent-seeking approach to crime? Here is a different approach. Some economists argue that social capital, though nebulous and hard to measure, is essential for economic prosperity. Social capital is the set of shared values and norms that allow a group to cooperate. Trust is an important part of social capital, and societies in which people trust only family members have been slow to develop economically. What will high crime rates or the perception of high crime rates do to trust? If trust is reduced, what effects will that have on economic activity? Can you see how the argument would be constructed?)

7. The economics department at St. Germaine College offers a prize of $1000 for the best essay on rent seeking. These students are considering entering:

Cost of writing the essay
Chances each thinks she has to win
1 in 3
1 in 6
1 in 5
1 in 2
1 in 20

Suppose that students enter when their expected winnings exceed their costs. Place a check mark in front of the students who will enter:

a. Joan
b. Mary
c. Karen
d. Kay
e. Betty

Ignoring the costs of judging the competition, how much will be spent to transfer the $1000 to a student? $

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