Ravi Radhakrishnan, Centre College – Rent-Seeking Activities

On Centre College Week:  Why is more money going to lobbying in politics than before?

Ravi Radhakrishnan, associate professor of economics and business, says it’s a pressing issue.

Ravi Radhakrishnan joined Centre College in 2012 as an Assistant Professor of Economics. His area of specialization is growth theory with a focus on the role of rent-seeking activities like lobbying on long-run productivity growth. Another area of his work focuses on intellectual property rights and economic growth. His research in these areas has appeared in several peer-reviewed journals in economics. Dr. Radhakrishnan was named Centre Scholar during 2017-2019 for excellence in scholarship, teaching, and service to the college.

Rent-Seeking Activities

In economics, rent-seeking activities are defined broadly as activities where organizations seek to gain economic benefits over and above their contribution to production.

A good example of a rent-seeking activity is lobbying, where firms attempt to influence the government in order to achieve goals like lower taxes or a more favorable allocation of resources. In the United States, lobbying expenditure by firms doubled between 1998 and 2019, and research has shown that it has been a highly lucrative activity for the firms.

My research develops a conceptual framework to help understand the implications of lobbying and other forms of rent-seeking activities on the allocation of resources within an economy. The basic idea behind this framework is that when different firms or sectors compete via lobbying to gain access to resources within an economy, the sectors that are relatively better at lobbying end up with a greater share of the resources compared to the most economically efficient allocation.

The greater share of resources allows these firms to produce more output, but more importantly, also achieve increased productive efficiency through the process of learning by doing. The increased productivity allows these firms to devote even more resources to lobbying, which in turn leads to even more allocation of resources to them and the cycle continues. Therefore, over time we would find that sectors or firms in the economy that have an initial advantage in lobbying keep growing in size, while those who do not possess this advantage may shrink.

This framework can help us understand why overall lobbying expenses in U.S have increased significantly over time. Further, it can also provide a plausible explanation for how public funds are allocated between sectors and how some sectors grow at the expense of others.