Rent-seeking behaviour may occur because of many factors, such as the availability of resources, the political mechanism and control mechanisms. This section explores the determinant factors of rent-seeking behaviour, classified into two major groups. The first group
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relates to local factors, including population density (Goel and Nelson 2009), the availability of local natural resources, local revenue and also the transfer fund of central government (Bird and Smart 2001, Brodjonegoro and Ford 2007, Martinez-Vazquez and Searle 2007). The second group relates to audit reports of local government financial statements, as the instruments of accountability (Djankov et al. 2008).
Fischer (2006) and Murray (2012) defined rent-seeking behaviour as an individual or collective effort aimed at acquiring self-advantages that are not supported by adequate productive contributions. Rent-seeking is more an attempt to capture specific income rather than to provide goods or services at the expected level.
Khan and Sundaram (2000: 70) defined rent-seeking broadly as follows:
Rent-seeking is the expenditure of resources and effort in creating, maintaining or transferring rent. These expenditures can be legal, as with most forms of lobbying, queuing, or contributions of political parties. But they can also be illegal, as in the case of bribes, illegal political contributions, expenditures on private mafias, and so on. The processes are of tremendous significance because the resources use up are a social cost, and they determine the types of rents that are created and maintained in a particular society.
In simple terms, rent-seeking refers to the interest of specific group(s). Hartle (1983: 539) argued that rent-seeking is the behaviour of interest groups to obtain self-benefit through manipulating government resources. He provided a comprehensive definition of rent-seeking as follows:
... investments of real resources undertaken by individuals or groups (coalitions) of individuals with similar interests in the expectation of obtaining an increase (avoiding a decrease) in their income wealth as a result of securing (blocking) changes in legal rights; or maximizing the benefit (minimizing the cost) of earlier policy changes that created non-exclusive rights.
In line with this statement, Murray (2012: 15) provided the following definition of rent-seeking:
Rent-seeking is traditionally understood in economics, and now common language, is an activity undertaken by potential beneficiaries of government policy (those who receive rents from a policy decision) in order to ensure policy decisions are made in a way favourable to them. The resources
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devoted to these activities are usually known as the costs from rent-seeking. In this review the term rent-seeking costs has this exact meaning.
Based on these definitions, those with power in government, such as legislative members or leaders of the government, have great opportunities for rent-seeking because of their authority in making and changing policies. Power is used by politicians (legislative members) to optimize their utilities by allocating specific resources that could potentially provide opportunities for profits (Garamfalvi 1997).
Politicians have two main interests relating to the use of budgets: first they will seek opportunities in the areas of spending that provides possibilities for corrupt behaviour (Mauro 1998); second they will utilize their budget for both political and individual purposes, for example to fulfil promises made during their campaigns (Garamfalvi 1997). Regional leaders will have similar interests because they are directly elected in public elections, so they have responsibilities to their voters (Alt and Lassen 2006). However, the opportunistic behaviour by local leader(s) to increase personal welfare may exist in local government (see Henderson and Kuncoro 2010, Rinaldi et al. 2007).
The interesting part of the definition by Khan and Sundaram (2000: 70) is the idea that rent- seeking behaviour can happen legally. This means that such behaviour exists as the result of interpretation of the law by budget actors, especially with the sections that relate to their rights in budgeting (Hillman 2011). In this context, the budgeting phase becomes crucial for the rent- seekers in deciding on the allocation of the budget in ways that will open up opportunities for them to obtain benefit for themselves. Such rent-seeking can lead to political corruption because it relates to the abuse of power for private benefit. Politicians and bureaucrats have the responsibility for allocating resources based on the priority of local fiscal need which can enforce local productivity to increase the local government performance. However, on the other hand, they have an interest in securing their political position and in returning their political investment.
However, following the definition by Khan and Sundaram (2000: 70), rent-seeking behaviour will result in social cost. Such loss may be incurred because the resources used in rent- seeking serve more in terms of distribution rather than in providing something productive for the public (Hillman 2011). Even though the budget actors may allocate all the money legally, rent-seeking behaviour can still be detected through the output produced; that is, it tends to be waste rather than something that triggers productive activities. This argument is in line with Del Rosal (2011) who states that rent-seeking is harmful as it shifts the allocation of resources
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unproductively: it creates excessive social cost that is higher than the cost to conduct the rent- seeking activities.
On the other hand, rent-seeking is not necessarily wasteful. It is very important to detect the motivation for government policy when examining resource distribution. Lobbying by politicians and interest groups may lead to bribery, which provides benefits for politicians. However, it also brings the possibility of additional resources for government (Hillman 2011). Lobbying is a legal activity, because it is a part of a politician’s duties.