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Do too many cooks always spoil the stew? An experimental analysis of rent-seeking and the role of a strategic buyer

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  • Douglas Davis
  • Robert Reilly

Abstract

Laboratory methods are used to evaluate the effects of institutional arrangements and rent-defending activity on rent-seeking auction outcomes. In part, Nash equilibrium predictions are a useful behavioral guide: As predicted, more rents are dissipated in perfectly-discriminating auctions, where the high-bidder wins, than in lotteries, where relative bids determine the chance of winning. Also as predicted, the introduction of a rent-defending buyer reduces social costs. Nevertheless, the social costs of rent-seeking consistently exceed predicted levels. Moreover, individual bidding, especially by buyers, deviates markedly from Nash predictions. Copyright Kluwer Academic Publishers 1998

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  • Douglas Davis & Robert Reilly, 1998. "Do too many cooks always spoil the stew? An experimental analysis of rent-seeking and the role of a strategic buyer," Public Choice, Springer, vol. 95(1), pages 89-115, April.
    • Handle: RePEc:kap:pubcho:v:95:y:1998:i:1:p:89-115
    DOI: 10.1023/A:1004916624881
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