In an episode of the TV show Friends, Ross is looking for a new apartment and finds that “ugly naked guy” is moving out of his apartment across the street. It’s Ross’s dream apartment so when he finds out that “ugly naked guy” is subletting the apartment himself, he sends him a gift to try and sway his decision. Unfortunately for Ross, many other applicants have the same idea and send over lavish gifts to try and win the apartment.
This “auction” for the apartment is an open competition. This leads to rent seeking behaviors to try and get the prize of the apartment. The outcome in this case is allocatively inefficient because applicants are using resources to buy bribes instead of using those resources in more efficient ways. For example, one applicant buys “ugly naked guy” a mountain bike. This expensive gift may not even generate utility for the recipient depending on whether or not he bikes or already owns a bike. Ross even spends time lobbying “ugly naked guy” in person. Hence, the time and money used to bribe him for the apartment are used in an allocatively inefficient way. Additionally, this situation is akin to an all pay auction. Ross cannot get back his $12 basket of mini muffins even if he does not win the apartment. This literal rent seeking is socially wasteful.
1 comment:
Hey Aviva, this is a great example of how the concept of rent seeking can be applied outside of politics and policy making. While there’s clearly a loss in utility here, could any positive outcomes result from this type of rent-seeking behavior? For instance, could Ross’s efforts demonstrate his commitment and reliability as a tenant, potentially benefiting both parties if he wins? If you have time, let me know what you think.
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