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Giving Away Money Costs More Than You Think

When people compete for grants, subsidies, and other government handouts, economists see a phenomenon called rent seeking. The “rent” is the money being offered. When government gives money away, the people who compete for it incur costs—sometimes more money will be spent in total trying to compete for a grant than the amount of money being given away. These costs are rarely considered in policymaking, but perhaps they should be. One major cost of rent seeking, as Prof. Michael Munger points out, may be that the government awards money to organizations with the best lobbyists, not necessarily those providing the best services.

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