ILLEGAL MARKETS AND THE SOCIAL COSTS OF RENT-SEEKING

This paper argues that making goods or services illegal results in an increase in the social costs associated with rent-seeking. The increased social cost is in the form of negative externalities that result from market participants use of coercion and violence in attempts to control trade in the illegal good. Consequently, the social costs of rent-seeking will exceed the value of resources dissipated in rent-seeking competition. And, where the external costs exceed the undissipated portion of the Tullock cost, the social cost of rent-seeking is greater than the sum of Tullock and Harberger costs.