Transitional gains and rent extraction

Tullock (Bell J Econ 6:671–678, 1975) described a transitional gains trap in which the present value of rents is capitalized in the value of an asset required to get the rents. Owners of the assets just earn a normal rate of return on their assets, despite the inefficient policies that produced the rents. The trap was that undoing the inefficient policy would impose a transitional loss on the owners of those assets. Tullock characterized the creation of transitional gains as a mistake, but combined with McChesney’s (J Leg Stud 16(1):101–118, 1987) rent extraction framework, the creation of transitional gains can be seen as a mechanism for rent extraction, not a mistake. Tullock (Bell J Econ 6:671–678, 1975) focuses on the value of assets required to obtain rents. Sometimes investment in those assets imposes a welfare loss on the economy, but the rent-seeking literature does not acknowledge that at other times it does not. Rent-seeking is typically not as economically costly as it appears to be in much of the rent-seeking literature.