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Seeking Rents in the Shadow of Coase

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  • Guiseppe Dari-Mattiacci

    ()
    (Universiteit van Amsterdam)

  • Sander Onderstal

    ()
    (Universiteit van Amsterdam)

  • Francesco Parisi

    ()
    (University of Minnesota)

Abstract

Trade opportunities are generally seen as valuable instruments to improve the allocation of resources in society. However, when the traded rights are secured through unproductive rent-seeking contests, the tradeability of the rents may provide stronger incentives to invest in rent-seeking activities, exacerbating rent-dissipation losses. In some cases the increase in rent dissipation may exceed the benefits of trade, rendering the opportunity to transfer rents socially undesirable. We consider a two-stage game in which the contestants have different valuations of the sought-after rent. In the first stage, parties invest to secure rights by participating in a rent-seeking contest. In the second stage, parties decide whether to reallocate the rights by entering in a Coasean exchange. We show that an opportunity for an ex post reallocation of the rights may have perverse ex ante effects. We consider the effect that such trading opportunities have on the parties’ payoffs and evaluate the final outcome in terms of dissipation and misallocation costs, comparing our scenario with tradeable rents to the conventional case of non-tradeable rents.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 06-069/1.

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Date of creation: 09 Aug 2006
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Handle: RePEc:dgr:uvatin:20060069

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Web page: http://www.tinbergen.nl

Related research

Keywords: Rent-seeking; asymmetric rent valuations; misallocation costs; rent dissipation;

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Cited by:
  1. Giuseppe Dari-Mattiacci & Eric Langlais & Bruno Lovat & Francesco Parisi, 2013. "Asymmetries in Rent-Seeking," EconomiX Working Papers 2013-5, University of Paris West - Nanterre la Défense, EconomiX.
  2. Ian A. MacKenzie, 2009. "Controlling externalities in the presence of rent seeking," CER-ETH Economics working paper series 09/111, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

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