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The Incidence of Overdissipation in Rent-Seeking Contests

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Author Info
Michael R. Baye (The Pennsylvania State University)
Dan Kovenock (Purdue University)
Casper G. de Vries () (Erasmus University Rotterdam)

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Abstract

This paper reconsiders Tullock's analysis of rent seeking and wasteful overdissipation. The purpose of this paper is to point out that even though his original analysis of overdissipation is technically flawed, the definition of overdissipation can be modified to explain instances in which rational rent-seekers spend more to win a prize than the prize is worth. We showed before that equilibrium mixed strategies in the Tullock game do not permit overdissipation in expectation: the expected total amount spent competing for rents cannot exceed the value of the prize. However, since the equilibrium involves mixed-strategies for particular realizations of the mixed strategies the total amount spent competing for rents can exceed the value of the prize! In fact, we show that the cross-sectional incidence of overdissipation may be quite high. For a symmetric perfectly discriminating contest (R = &inf;), the probability of overdissipation in a symmetric equilibrium ranges from exactly one-half in the two player case to approximately .44 as the number of players approaches infinity.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 97-045/2.

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Date of creation: 15 May 1997
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Handle: RePEc:dgr:uvatin:19970045

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  1. Gil Epstein & Shmuel Nitzan & Mordechai Schwarz, 2008. "Efforts in two-sided contests," Public Choice, Springer, vol. 136(3), pages 283-291, September. [Downloadable!] (restricted)
  2. Kai A. Konrad & Dan Kovenock, 2006. "Multi-battle contests," Discussion Papers 122, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
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  3. Frederik Schmidt, 2009. "Evolutionary stability of altruism and envy in Tullock contests," Economics of Governance, Springer, vol. 10(3), pages 247-259, July. [Downloadable!] (restricted)
  4. Giuseppe, Dari-Mattiacci & Bruno, Lovat & Eric, Langlais & Francesco, Parisi, 2004. "Crowding-out in productive and redistributive rent seeking," MPRA Paper 1151, University Library of Munich, Germany, revised 14 Nov 2006. [Downloadable!]
    Other versions:
  5. repec:att:wimass:1919986 is not listed on IDEAS
  6. Cotton, Christopher, 2007. "Informational Lobbying and Competition for Access," MPRA Paper 1842, University Library of Munich, Germany. [Downloadable!]
  7. Giuseppe Dari-Mattiacci & Francesco Parisi, 2005. "Rents, dissipation and lost treasures: Rethinking Tullock's paradox," Public Choice, Springer, vol. 124(3), pages 411-422, September. [Downloadable!] (restricted)
  8. Alexander Matros & Wooyoung Lim, 2007. "Contests with a Stochastic Number of Players," Working Papers 323, University of Pittsburgh, Department of Economics, revised Sep 2008. [Downloadable!]
  9. Christopher J. Ellis & John Fender, 2007. "Public Sector Capital and the Transition from Dictatorship to Democracy," Discussion Papers 07-14, Department of Economics, University of Birmingham. [Downloadable!]
  10. Lugovskyy, Volodymyr & Puzzello, Daniela & Tucker, Steven, 2008. "An experimental investigation of overdissipation in the all pay auction," MPRA Paper 8604, University Library of Munich, Germany. [Downloadable!]
  11. Robinson, W.T. & Min, S., 1998. "Is the First to Market the First to fail?: Empirical Evidence for Manufacturing Business," Purdue University Economics Working Papers 1115, Purdue University, Department of Economics. [Downloadable!]
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