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Dissipation in Rent-seeking Contests with Entry Costs

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Author Info

  • Richard Cornes

    (School of Economics, University of Nottingham,)

  • Roger Hartley

    ()
    (Keele University Department of Economics)

Abstract

This paper considers the extent to which expenditure by contestants in imperfectly discriminating rent-seeking contests dissipates all or only part of the rent. In particular, we investigate strategic effects, technological effects and asymmetry under an assumption of diminishing returns to scale. Although asymmetry can reduce dissipation when there are few contestants, we show that this effect disappears in the Nash equilibria of large contests. Similarly, strategic effects are diminished if the cost of entry, which restricts the number of contestants, is fully taken into account. When individual entry costs fall to zero, the reduction in dissipation arising from technological factors is entirely eliminated in the limit. More generally, the dissipation-reducing properties of all three effects operating simultaneously disappear as individual entry fees fall to zero provided the aggregate cost of entry is added to the expenditure of entrants. These conclusions are robust to details of the entry process which can be sequential, in which case the ordering is irrelevant to the limiting results, or simultaneous. Our principal theoretical tool is the share function which expresses the probability of a player winning the contest as a function of aggregate expenditure. However, this methodology has independent interest as it can be applied in many other contexts (not formally analyzed here).

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File URL: http://www.keele.ac.uk/depts/ec/wpapers/kerp0211.pdf
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Bibliographic Info

Paper provided by Centre for Economic Research, Keele University in its series Keele Economics Research Papers with number KERP 2002/11.

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Length: 36 pages
Date of creation: Sep 2002
Date of revision:
Handle: RePEc:kee:kerpuk:2002/11

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Postal: Department of Economics, University of Keele, Keele, Staffordshire, ST5 5BG - United Kingdom
Phone: +44 (0)1782 584581
Fax: +44 (0)1782 717577
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Web page: http://www.keele.ac.uk/depts/ec/cer/
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Postal: Centre for Economic Research, Research Institute for Public Policy and Management, Keele University, Staffordshire ST5 5BG - United Kingdom
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Web: http://www.keele.ac.uk/depts/ec/cer/pubs_kerps.htm

Related research

Keywords: Non-cooperative games; rent-seeking; rent dissipation; entry costs;

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Cited by:
  1. Konrad, Kai A., 2007. "Strategy in contests: an introduction," Discussion Papers, Research Unit: Market Processes and Governance SP II 2007-01, Social Science Research Center Berlin (WZB).
  2. R Cornes & R Hartley, 2005. "The Geometry of Aggregative Games," The School of Economics Discussion Paper Series 0514, Economics, The University of Manchester.
  3. Roger Hartley & Richard Cornes, 2004. "Mixed sharing rules," Econometric Society 2004 Australasian Meetings 196, Econometric Society.

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