The Demand and Supply of Wealth Transfers

Abstract

Based on the concepts laid out in the first two chapters, we see that wealth transfers to successful interest groups are inexorably linked to shirking by voters. In a world of costless voting and Wicksellian unanimity there would clearly be no Pareto-inferior moves; all transfers would enhance individually perceived welfare. Costly voting encourages transfer-seeking activity because it makes shirking efficient for some voters; indeed, some voters may even shirk under a unanimity rule if the costs of voting and becoming informed exceed the benefits of voting. Individuals will thus let their wealth be taken away from them so long as the costs of changing political outcomes are less than the amount of wealth taken away. If collective decisions are easily influenced, there will be a small amount of wealth transfers supplied. As the costs of monitoring and sanctioning collective decisions rise, a larger quantity of wealth transfers will be supplied.

A shorter version of this chapter was originally published in Robert E. McCormick and Robert D. Tollison, “Wealth transfer in a Representative Democracy,” in Toward a Theory of the Rent-Seeking Society, James M. Buhanan, Robert D. Tollison and Gordon Tullock,eds. (College Station: Texas A&M University Press, 1980), pp. 293–313.