ABSTRACT
This chapter suggests that public sector rent-seeking and the institutional arrangements that arise from it should become the unit of analysis of development theory and practice. The public sector rent-seekers raise the transaction costs of public goods, services, and "contracts" with which the public and private sectors try to create an efficient market for public goods. The chapter provides three examples of rent-seeking capture in the externalities markets in Colombia. The examples are: the capture of the primary and secondary educational market; the capture of the telecommunications market; and the capture of the environmental market. The chapter shows the underlying common characteristics that can sustain an infant theory of failure in the externalities market. The success of public sector rent-seeking institutions are explained less by their dexterity in restricting competition than by the unwitting complicity of those who believe in the neoclassical market model. The strategy for dealing with public sector rent-seeking should begin at the macroinstitutional and policy levels.
