Incorporating Policymaker Costs and Political Competition into Rent‐Seeking Games

We incorporate policymaker costs of supplying rents and variable intensities of competition among rent seekers into the standard rent‐seeking game. By incorporating these aspects, the game has greater verisimilitude to the lobbying process. The first aspect captures the fact that in rent‐seeking contests there is a positive probability that neither firm will obtain the rent. The second aspect captures the fact that firms seeking different rents still must compete for policymakers' resources. We find that lobbying expenditures, rent‐seeking profits, and rent dissipation depend on the intensity of competition and the value of the rent relative to policymaker costs. For example, if the value of the rent is sufficiently high relative to policymakers' costs, an increase in the intensity of political competition will increase lobbying expenditures; otherwise, expenditures fall as competitive intensity increases. In addition, the model establishes pure‐strategy equilibria with underdissipation where only mixed‐strategy equilibria exist in the standard model.