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Seeking rents in the shadow of Coase

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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. This discussion paper resulted in a publication in Public Choice .
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Suggested Citation

  • Giuseppe Dari-Mattiacci & Sander Onderstal & Francesco Parisi, 2009. "Seeking rents in the shadow of Coase," Public Choice, Springer, vol. 139(1), pages 171-196, April.
  • Handle: RePEc:kap:pubcho:v:139:y:2009:i:1:p:171-196 DOI: 10.1007/s11127-008-9387-6
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    Cited by:

    1. Hanley Nick & MacKenzie Ian A, 2010. "The Effects of Rent Seeking over Tradable Pollution Permits," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-26, July.
    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.
    3. Giuseppe Dari-Mattiacci & Eric Langlais & Bruno Lovat & Francesco Parisi, 2013. "Asymmetries in Rent-Seeking," EconomiX Working Papers 2013-5, University of Paris Nanterre, EconomiX.

    More about this item

    Keywords

    Rent-seeking; Asymmetric rent valuations; Rent-dissipation; Rent-misallocation; C72; D72;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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