Rent exhaustion is no economists’ fantasy – go to any place with
rich tourists and poor locals (Dar es Salaam, the first African city I
visited, fits the description nicely), and you’ll see lots of people
waiting for the one generous tip or overpriced taxi fare. If the
tourists become more generous or gullible, the local guides don’t get
richer, they just multiply. The bigger paydays become less frequent.
Cowen – an economics professor with a popular blog – argues in his
forthcoming book, Discover Your Inner Economist, that for these reasons
you may wish to give money away by wandering around a poor country, far
away from the tourist trail, and handing cash to people who look busy.
Vicious fights over prime begging spots are yet another example of rent exhaustion in this context. If the begging spot is worth say $50 a year, beggars will devote up to $50 a year to keep the spot. Here is my previous post on whether you should give money to beggars.