Dissipation in Rent-seeking Contests with Entry Costs
AbstractThis 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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Bibliographic InfoPaper provided by EconWPA in its series Game Theory and Information with number 0211001.
Length: 36 pages
Date of creation: 05 Nov 2002
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Note: Type of Document - pdf; prepared on pc; pages: 36
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Non-cooperative games; rent-seeking; rent dissipation; entry costs;
Other versions of this item:
- Richard Cornes & Roger Hartley, 2002. "Dissipation in Rent-seeking Contests with Entry Costs," Keele Economics Research Papers KERP 2002/11, Centre for Economic Research, Keele University.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
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- R Cornes & R Hartley, 2005. "The Geometry of Aggregative Games," The School of Economics Discussion Paper Series 0514, Economics, The University of Manchester.
- 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).
- Roger Hartley & Richard Cornes, 2004. "Mixed sharing rules," Econometric Society 2004 Australasian Meetings 196, Econometric Society.
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