Revenue Seeking: A Generalization of the Theory of Tariffs—a Correction

In our paper on "Revenue Seeking: A Generalization of the Theory of Tariffs" (1980), we extended the theory of tariffs to include revenue seeking. We also compared tariffs with quotas, under seeking activities associated with the revenues from the former and with the rents (i.e., license premia) from the latter. We argued, among other propositions, that: (1) Revenue seeking was a zero-output activity undertaken in the presence of, and triggered by, a distortion. (2) Therefore the questions about whether and what losses it imposed were second-best (rather than first-best) questions, and thus such a seeking activity could be beneficial rather than immiserizing (i.e., the shadow price of a primary factor of production could be [sufficiently] negative). (3) Correspondingly, premium seeking^—the "command'' counterpart of the revenue-seeking phenomenon—was also a second-best phenomenon. (4) Therefore, premium seeking may also be beneficial rather than immiserizing, contrary to Krueger's (1974) argument reflecting first-best intuition. (5) The welfare cost of a quota could not, in view of the second-best nature of the problem, be measured generally (as Krueger [1974] had proposed) as the cost of an equivalent tariff (in the absence of any seeking) plus the value of the rents even if all rents were competitively sought. (6) A proper comparison of tariffs and quotas would have to compare a tariff with revenue seeking vis-a-vis a quota with premium seeking, in preference to Krueger's (1974) comparison of a quota with full premium