Advanced Search
MyIDEAS: Login to save this article or follow this journal

Efficient rents 1 rent-seeking behavior in the long-run

Contents:

Author Info

  • William Corcoran
  • Gordon Karels
Registered author(s):

    Abstract

    We have analyzed long-run behavior in rent-seeking under several conditions and behavioral hypotheses. The question of interest is whether or not the long-run expenditures will exactly equal the value of the rents. Our results depend on the type of competitive response which is assumed to exist in the long-run and on the r-value governing the probability of winning. For the case where the r-value is less than or equal to one, Tullock has pointed out that aggregate expenditures will always be less than the value of the game. The long-run solution, however, results in each firm submitting an infinitesimal bid — not a very realistic solution. We showed that when a minium bet requirement is imposed, the number of players is determined in the long-run, and all rents will be dissipated if the minimum bet is integer divisible into the payoff. If not, aggregate expenditures depend upon the size of the minimum bet relative to the total payoff; however, the tendency towards complete dissipation of expected profits still exists. For r-values greater than one we looked at entry under hit and run and hardball competition. Under hit and run competition entry occurs if the potential entrant can make positive expected profit. In the long-run this suggests that incumbents make their bets to pre-empt potential competition. We found a range of possible pre-emptory bets. Using this range we considered the Cournot-Nash and the collusion solutions. For both cases the hit and run entry assumption allows various numbers of incumbents to be a stable equilibrium. For high r-values, however, only one player can exist. Aggregate expenditures under both kinds of solutions dissipate the greater part but not all of the available rents. As the number of players is increased greater dissipation of the rents results. Hardball competition was defined as entry occurring so long as accommodation could be forced by imposing expected losses on the incumbents if accommodation and resulting expected profits for the entrant are not obtained. This would require the potential entrant to be willing to absorb a short-run loss. If this type of entry is carried out, the number of players increases to the point where the minimum pre-emptory bid yields a negative expected profit for the players. The number of players will thus depend upon the r-value. The rents will always be very nearly dissipated in hardball competition whether the incumbents collude or settle at the C-N solution initially. These results assume the payoff is known with certainty and is treated as if the game is continually replayed. Since all players were assumed identical, the long-run results could also be considered the solution where each possible player has timeto consider alternatives and signal ‘precommittal’ behavior. It is perhaps interesting that the results concerning hardball competition are similar in nature to those obtained in the monopoly analysis of Baumol, Panzar and Willig (1982) on potential competition. They find that the presence of potential competition dissipates monopoly profits under certainty and non-increasing average costs. This is very similar to our findings that rents are nearly dissipated with the potential for entry if the entrant would be willing to accept short-run losses. Given the social objective to minimize the expenditure of resources in rent-seeking the following are implied by our results: 1. Dissallowing any type of entry and minimizing the number of players will hold down the aggregate expenditure of resources. Further reductions will be obtained if collusion is encouraged allowing players to place the minimum bet to maximize expected profits. 2. If entry cannot be disallowed then regulate against hardball competition whereby entrants incur short-run expected losses to gain accommodation by incumbents. Here again collusion is preferable, not only because it results in minimum expenditures by each incumbent but also because the C-N solution is unstable at low numbers of players for certain r-values and hit and run entry will result. 3. If hardball entry cannot be prevented then encouraging competition among the incumbents with a likely C-N solution appears to be marginally preferable to allowing collusion. 4. Application of a lump sum cost as a condition for participating in the rent-seeking process, e.g., a license, will reduce the total expenditure in rent-seeking by an equal amount. Copyright Martinus Nijhoff Publishers 1985

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://hdl.handle.net/10.1007/BF00124421
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Springer in its journal Public Choice.

    Volume (Year): 46 (1985)
    Issue (Month): 3 (January)
    Pages: 227-246

    as in new window
    Handle: RePEc:kap:pubcho:v:46:y:1985:i:3:p:227-246

    Contact details of provider:
    Web page: http://www.springerlink.com/link.asp?id=100332

    Related research

    Keywords:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Wilson, Robert, 1977. "A Bidding Model of Perfect Competition," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 44(3), pages 511-18, October.
    2. Demsetz, Harold, 1976. "Economics as a Guide to Antitrust Regulation," Journal of Law and Economics, University of Chicago Press, vol. 19(2), pages 371-84, August.
    3. Selby, Edward B, Jr & Beranek, William, 1981. "Sweepstakes Contests: Analysis, Strategies, and Survey," American Economic Review, American Economic Association, vol. 71(1), pages 189-95, March.
    4. Foster, Edward, 1981. "The Treatment of Rents in Cost-Benefit Analysis," American Economic Review, American Economic Association, vol. 71(1), pages 171-78, March.
    5. Posner, Richard A, 1975. "The Social Costs of Monopoly and Regulation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 83(4), pages 807-27, August.
    6. William Corcoran, 1984. "Long-run equilibrium and total expenditures in rent-seeking," Public Choice, Springer, Springer, vol. 43(1), pages 89-94, January.
    7. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54 National Bureau of Economic Research, Inc.
    8. Gordon Tullock, 1984. "Long-run equilibrium and total expenditures in rent-seeking: A comment," Public Choice, Springer, Springer, vol. 43(1), pages 95-97, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Edward Millner & Michael Pratt, 1989. "An experimental investigation of efficient rent-seeking," Public Choice, Springer, Springer, vol. 62(2), pages 139-151, August.
    2. J. Smith & Shlomo Weber, 1989. "Rent-seeking behaviour of retaliating agents," Public Choice, Springer, Springer, vol. 61(2), pages 153-166, May.
    3. Robert Michaels, 1988. "The design of rent-seeking competitions," Public Choice, Springer, Springer, vol. 56(1), pages 17-29, January.
    4. Robert Michaels, 1989. "Conjectural variations and the nature of equilibrium in rent-seeking models," Public Choice, Springer, Springer, vol. 60(1), pages 31-39, January.
    5. Jack Hirshleifer, 1989. "Conflict and rent-seeking success functions: Ratio vs. difference models of relative success," Public Choice, Springer, Springer, vol. 63(2), pages 101-112, November.
    6. Hiroyuki Sano, 2014. "Reciprocal rent-seeking contests," Social Choice and Welfare, Springer, Springer, vol. 42(3), pages 575-596, March.
    7. Gordon Tullock, 1985. "Efficient rents 3 back to the bog," Public Choice, Springer, Springer, vol. 46(3), pages 259-263, January.
    8. Arye Hillman & Dov Samet, 1987. "Dissipation of contestable rents by small numbers of contenders," Public Choice, Springer, Springer, vol. 54(1), pages 63-82, January.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:kap:pubcho:v:46:y:1985:i:3:p:227-246. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F. Baum).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.