Abstract Special interest groups possess political influence exceeding their size and influence government’s expansion beyond efficiency limits. T h e prisoners’ dilemma illustrates that although it is in the interest of each group to capture maximum government
benefits, when all do, all groups are worse off collectively. T h e result is a government that is too large, with gains to each group worth less than their costs. Further gains could be derived if all groups reduce their demands on government. However, securing agreement on such reform is
difficult. Unilaterally reducing demands on government means individuals pay for benefits of others without receiving anything in return. Standard discussions of reducing the size of government by overcoming prisoners’ dilemma incentives understate the degree of difficulty involved.
We demonstrate that once groups choose noncooperation, they develop skills, which build up over time, thereby enlarging the payoff to the chosen path. As the damage from political rent seeking increases, the motivation for reform declines. However, beyond some point, even with the skill
set that has evolved, individual gains from rent seeking are worth less than the costs of the rent-seeking privileges of others. Thus, the prospect of imposing generalized limits on political privileges improves, even though they impose short-run costs.
