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 increas ed social cost is in the form of negative externalities that result fr om market participants use of coercion and violence in attempts to con trol 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 po rtion of the Tullock cost, the social cost of rent-seeking is greater than the sum of Tullock and Harberger costs.