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Policy making and rent-dissipation: An experimental test

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  • David Bullock
  • E. Rutström

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Abstract

We present a transfer-seeking model of political economy that links the theory of Becker (1983) with Tullock-type models of politically contestable rents. In our model the size of the transfer is determined endogenously, and over-dissipation of rents is predicted even under conditions of risk-neutrality and perfect rationality. We implement an empirical test of this model by collecting behavioral data in a laboratory experiment. We confirm the existence of behavior that leads to over-dissipation of rents in games with both symmetric and asymmetric political power. To the extent that the transfer-seeking costs are social costs, our findings imply that the total costs of running government might be greatly underestimated if the value of the rent is used as a proxy for the rent-seeking cost. We also confirm the hypotheses that lowering the political power of one player can lead to smaller rent-seeking expenditures and to larger transfers Copyright Economic Science Association 2007

Suggested Citation

  • David Bullock & E. Rutström, 2007. "Policy making and rent-dissipation: An experimental test," Experimental Economics, Springer;Economic Science Association, vol. 10(1), pages 21-36, March.
  • Handle: RePEc:kap:expeco:v:10:y:2007:i:1:p:21-36
    DOI: 10.1007/s10683-006-9133-1
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Benedikt Herrmann & Henrik Orzen, 2008. "The appearance of homo rivalis: Social preferences and the nature of rent seeking," Discussion Papers 2008-10, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    2. Emmanuel Dechenaux & Dan Kovenock & Roman Sheremeta, 2015. "A survey of experimental research on contests, all-pay auctions and tournaments," Experimental Economics, Springer;Economic Science Association, vol. 18(4), pages 609-669, December.
    3. Kräkel, Matthias & Nieken, Petra & Przemeck, Judith, 2014. "Risk taking and investing in electoral competition," European Journal of Political Economy, Elsevier, vol. 33(C), pages 98-120.
    4. Lim, Wooyoung & Matros, Alexander & Turocy, Theodore L., 2014. "Bounded rationality and group size in Tullock contests: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 99(C), pages 155-167.
    5. Faravelli, Marco & Stanca, Luca, 2012. "When less is more: Rationing and rent dissipation in stochastic contests," Games and Economic Behavior, Elsevier, vol. 74(1), pages 170-183.
    6. Mago, Shakun D. & Sheremeta, Roman M. & Yates, Andrew, 2013. "Best-of-three contest experiments: Strategic versus psychological momentum," International Journal of Industrial Organization, Elsevier, vol. 31(3), pages 287-296.
    7. Richard Cornes & Roger Hartley, 2012. "Loss Aversion in Contests," The School of Economics Discussion Paper Series 1204, Economics, The University of Manchester.
    8. Roman M. Sheremeta, 2011. "Contest Design: An Experimental Investigation," Economic Inquiry, Western Economic Association International, vol. 49(2), pages 573-590, April.
    9. Bullock, David S. & Mittenzwei, Klaus, 2005. "Using Evolutionary Game Theory to Examine U.S. and EU Agricultural Policy Institutions," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24538, European Association of Agricultural Economists.
    10. Meroz, Yael & Morone, Andrea & Morone, Piergiuseppe, 2009. "Eliciting environmental preferences of Ghanaians in the laboratory: An incentive-compatible experiment," MPRA Paper 17107, University Library of Munich, Germany.
    11. Sheremeta, Roman, 2009. "Essays on Experimental Investigation of Lottery Contests," MPRA Paper 49888, University Library of Munich, Germany.
    12. Lisa Anderson & Beth Freeborn, 2010. "Varying the intensity of competition in a multiple prize rent seeking experiment," Public Choice, Springer, vol. 143(1), pages 237-254, April.

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