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Rent-seeking with scarce talent: a model of preemptive hiring

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Author Info
Sami Dakhlia (University of Alabama)
Paul Pecorino (University of Alabama)

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Abstract

In the standard model of a rent-seeking contest, firms optimally employ resources in an attempt to win the contest and obtain the rent. Typically, it is assumed that these resources may be hired at any desired level at some fixed, exogenous per-unit cost. In many real-world rent-seeking contests, however, these resources consist of scarce, talented individuals. We model a rentseeking contest in which the talent available for employment is scarce and in which the rent obtained from winning the contest may also differ from participant to participant. Talent scarcity leads to preemptive hiring by the player receiving the larger rent. In the traditional analysis, as the size of the rents converges, the levels of effort and the probability of winning also converge. By contrast, when talent is scarce, the player receiving the larger rent hires it all and wins the contest with probability 1. This is true even if the difference in rents is small. Interestingly, this outcome may be Pareto-inferior to the outcome associated with the interior Nash equilibrium. We also characterize the condition under which talent ceases to be scarce. For a simple rentseeking game, this requires at least 50% more talent than is employed at the interior Nash equilibrium.

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Paper provided by EconWPA in its series Microeconomics with number 0505002.

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Length: 23 pages
Date of creation: 12 May 2005
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Handle: RePEc:wpa:wuwpmi:0505002

Note: Type of Document - pdf; pages: 23
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Related research
Keywords: rent-seeking scarce talent labor market lobbying preemptive hiring

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Find related papers by JEL classification:
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
J4 - Labor and Demographic Economics - - Particular Labor Markets

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