Rent-Seeking Distortions Exceed Welfare Costs, Challenging Economic Assumptions
Existing distortions in markets can lead to inaccurate estimates of the costs of new distortions. Producers in other industries may try to influence policies to their advantage, leading to increased rent-seeking activities. This can result in higher resource spending than just the sum of individual distortions. Contrary to traditional beliefs, introducing or increasing distortions may not always be beneficial for overall welfare.