PALESTINE FOREIGN AID

The Rent Seeking Aspect of the Foreign Aid to Palestine

The Rent Seeking Aspect of the Foreign Aid to Palestine

Introduction

This piece of work covers a precise discussion on rent-seeking and its relation to foreign aid granted to those countries where redistribution of national income relies on the taxation system and privileges of monopoly exist in the economy. Palestine is an example of such a nation. Therefore, this essay aims at narrowing the general discussion of rent-seeking and corruption in an aid recipient country to the case of Palestine. Deterring all the factors, that negatively impact the process of economic expansion and development in a country, is as hard as deterring the factors leading to economic growth. Rent-seeking and corruption are considered to be included in all the factors that spoil a nation's efforts in the process of economic development.

Rent Seeking

Members of a collective are assumed to have two characteristics in Public Choice. First characteristic of the members of a society is that they jointly consume some goods and services called public goods. The second characteristic is the belief of the members that they can affect the supply of public goods through collective effort to benefit themselves. These collective decisions are costly, and the high cost is confronted by the attempters of the agreement. They are then agreed upon the rule of less-than-unanimity in order to reduce or avoid the cost of altering the decisions related to production and supply of public goods. Electing agents to enforcement of the laws that favour the beneficiary group and trying to alter the decisions of these elected agents are common practices in exploiting public goods by one group on the expense of the benefits of another group. Such actions are called rent seeking. The term rent-seeking means the monopoly of one entity over the stream of revenue, and make sure that the resources of that region are spent to make that money safe. In Palestine, the firms that provide financial assistance have frequently acted to develop rents that can be attained by well-placed Non-Governmental Organizations (NGOs), and state officials. Identifying the activities of rent seeking follows the procedure similar to identifying the damages of monopoly or other market failure in an economy. The difference in the two identifications is that the identification of rent seeking activities is based on the perception of the observer. The norms and values of the economy also play a significant role in differentiating economical activities from rent seeking. These norms and values often lie outside the economic theory.

Rent seeking can be classified into two kinds according to the objective or the process. First kind of rent seeking is one that captures monopoly privileges and the second kind of rent seeking use elected agents at social institutions to favour such a distribution of national wealth that favours a specific group. In the literature of welfare economics, Barelli and Pessoa (2002, p. 3) stated two findings of their model, which incorporated rent seeking into the neoclassical model of capital ...