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The Effect of Limited Search Ability on the Quality of Competitive Rent-Seeking Clubs

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  • Shmuel Nitzan

    ()
    (Bar-Ilan University)

  • Kobi Kriesler

    (Bar-Ilan University)

Abstract

A competitive rent-seeking club (CRSC) offers its members the chance of winning a prize (status, position, privilege) by being selected, typically, by a civil servant or a politician. The selector replaces in our setting the usual contest success function; instead of determining the winner on the basis of the club-members' efforts, he selects the winner on the basis of quality. This paper focuses on the effect of incomplete search of the selector on the efficiency of democratic self-governing and decentralized RSC's that control admittance to the club and its transparency, assuming that quality of their members is fixed. The incomplete search of the selector is assumed to take the simple form of fixed random sampling of the contestants - the members of the CRSC. Our results imply that, even when active rent-seeking expenditures are disregarded, the decisions of CRSC's regarding their composition and transparency tend to reduce quality and are therefore inefficient.

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Bibliographic Info

Paper provided by Department of Economics, Bar-Ilan University in its series Working Papers with number 2010-06.

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Date of creation: Apr 2010
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Handle: RePEc:biu:wpaper:2010-06

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Keywords: Competitive rent-seeking clubs; self governance; decentralized decisions; quality competition; selection by fixed random sampling; simple majority rule; endogenous membership determination; transparency; inefficiency; quality decay;

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  1. Benesch Christine & Frey Bruno S. & Stutzer Alois, 2010. "TV Channels, Self-Control and Happiness," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-35, September.
  2. Nti, Kofi O, 1997. "Comparative Statics of Contests and Rent-Seeking Games," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(1), pages 43-59, February.
  3. Raymond J. Deneckere & R. Preston McAfee, 1996. "Damaged Goods," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(2), pages 149-174, 06.
  4. Ellingsen, Tore, 1991. "Strategic Buyers and the Social Cost of Monopoly," American Economic Review, American Economic Association, vol. 81(3), pages 648-57, June.
  5. Rubinstein, Ariel & Salant, Yuval, 2006. "A model of choice from lists," Theoretical Economics, Econometric Society, vol. 1(1), pages 3-17, March.
  6. Gans, Joshua S. & Smart, Michael, 1996. "Majority voting with single-crossing preferences," Journal of Public Economics, Elsevier, vol. 59(2), pages 219-237, February.
  7. Baik, Kyung Hwan & Kim, In-Gyu & Na, Sunghyun, 2001. "Bidding for a group-specific public-good prize," Journal of Public Economics, Elsevier, vol. 82(3), pages 415-429, December.
  8. Nitzan, Shmuel, 1994. "Modelling rent-seeking contests," European Journal of Political Economy, Elsevier, vol. 10(1), pages 41-60, May.
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