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Long-run equilibrium and total expenditures in rent-seeking


  • William Corcoran


The objective of this paper is to investigate the assertion that a given rent payoff gives rise to an equal value of total expenditure. An analogy with perfect competition suggests a long-run perspective, which would allow the number of players to vary. Accordingly, a game theoretic model of the competitive process where competitors anticipate rival reactions and expend resources to increase their probability of winning is extended to include entry. Long-run quilibrium occurs when the incentive for entry is dissipated, i.e., expected profits equal 0 or the expected rate of return equals the opportunity cost discount rate. When this occurs total expenditure in rent-seeking is found to equal the payoff as in the standard competitive case. How does this result affect Tullock's policy recommendations? His first finding that total expenditures in rent-seeking can be minimized by holding the number of players down remains intact. Essentially, this requirement restricts entry and as a result maintains the short-run conditions indicated by equations (2) and (3) for a given number of firms. His second recommendation, that of increasing the marginal cost of improving a player's probability of winning must, however, be qualified. If the long-run equilibrium is attained total expenditures will equal the payoff regardless of the marginal cost. If the marginal cost is such that the long-run equilibrium is unbounded, there exists a continuous incentive for new entry. It is possible that total expenditures will increase as entry mounts, but this cannot be determined. A policy of increasing the marginal cost will work, however, if carried out in conjunction with a restriction on entry. In this case the short-run results still apply. Finally, an additional policy recommendation can be deduced. From equation (10) total rent-seeking expenditures will be reduced if the opportunity cost discount rate of return is increased. This may be achieved by such actions as increasing the lag between rent-seeking expenditures and the associated payoff, or unfettering alternative productive investments (reduced taxes, deregulation, etc.). Both result in a larger discount of the payoff. The results support the concern with rent-seeking behavior. It indicates that in the long-run each opportunity for rent — a transfer of wealth — displaces an opportunity for the creation of value which will be equal to or greater than the rent payoff. It will be greater, of course, where the investment alternative cannot capture the full social gain. Copyright Martinus Nijhoff Publishers 1984

Suggested Citation

  • William Corcoran, 1984. "Long-run equilibrium and total expenditures in rent-seeking," Public Choice, Springer, vol. 43(1), pages 89-94, January.
  • Handle: RePEc:kap:pubcho:v:43:y:1984:i:1:p:89-94
    DOI: 10.1007/BF00137909

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    References listed on IDEAS

    1. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters,in: Essays in the Economics of Crime and Punishment, pages 1-54 National Bureau of Economic Research, Inc.
    2. Posner, Richard A, 1975. "The Social Costs of Monopoly and Regulation," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 807-827, August.
    3. Foster, Edward, 1981. "The Treatment of Rents in Cost-Benefit Analysis," American Economic Review, American Economic Association, vol. 71(1), pages 171-178, March.
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    Cited by:

    1. Arye Hillman & Dov Samet, 1987. "Dissipation of contestable rents by small numbers of contenders," Public Choice, Springer, vol. 54(1), pages 63-82, January.
    2. James Lake & Maia K. Linask, 2013. "The near-equivalence of tariffs and quotas," Departmental Working Papers 1305, Southern Methodist University, Department of Economics.
    3. Temel, Tugrul, 2011. "Industrial policy, collective action, and the direction of technological change," MPRA Paper 31917, University Library of Munich, Germany.
    4. James Lake & Maia Linask, 2015. "Costly distribution and the non-equivalence of tariffs and quotas," Public Choice, Springer, vol. 165(3), pages 211-238, December.
    5. Edward Millner & Michael Pratt, 1989. "An experimental investigation of efficient rent-seeking," Public Choice, Springer, vol. 62(2), pages 139-151, August.
    6. Hiroyuki Sano, 2014. "Reciprocal rent-seeking contests," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 42(3), pages 575-596, March.
    7. Robert Michaels, 1988. "The design of rent-seeking competitions," Public Choice, Springer, vol. 56(1), pages 17-29, January.
    8. John Morgan & Henrik Orzen & Martin Sefton, 2012. "Endogenous entry in contests," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 51(2), pages 435-463, October.
    9. repec:eee:pubeco:v:150:y:2017:i:c:p:30-38 is not listed on IDEAS
    10. Grossmann, Martin & Dietl, Helmut, 2015. "Heterogeneous outside options in contests," European Journal of Political Economy, Elsevier, vol. 37(C), pages 280-287.
    11. Hiroyuki Sano, 2009. "Imitative Learning in Tullock Contests: Does Overdissipation Prevail in the Long Run?," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 165(3), pages 365-383, September.
    12. Cugno, Franco & Ferrero, Mario, 2004. "Competition among volunteers," European Journal of Political Economy, Elsevier, vol. 20(3), pages 637-654, September.
    13. Richard Higgins & William Shughart & Robert Tollison, 1985. "Efficient rents 2 free entry and efficient rent seeking," Public Choice, Springer, vol. 46(3), pages 247-258, January.
    14. Mark Gradstein, 1995. "Intensity Of Competition, Entry And Entry Deterrence In Rent Seeking Contests," Economics and Politics, Wiley Blackwell, vol. 7(1), pages 79-91, March.
    15. J. Smith & Shlomo Weber, 1989. "Rent-seeking behaviour of retaliating agents," Public Choice, Springer, vol. 61(2), pages 153-166, May.
    16. William Corcoran & Gordon Karels, 1985. "Efficient rents 1 rent-seeking behavior in the long-run," Public Choice, Springer, vol. 46(3), pages 227-246, January.
    17. S. Keith Berry, 2006. "Firm Incentives for Invention Prizes with Multiple Winners," Eastern Economic Journal, Eastern Economic Association, vol. 32(1), pages 83-95, Winter.
    18. Gordon Tullock, 1985. "Efficient rents 3 back to the bog," Public Choice, Springer, vol. 46(3), pages 259-263, January.
    19. Roger Congleton, 1986. "Rent-seeking aspects of political advertising," Public Choice, Springer, vol. 49(3), pages 249-263, January.
    20. Lim, Wooyoung & Matros, Alexander, 2009. "Contests with a stochastic number of players," Games and Economic Behavior, Elsevier, vol. 67(2), pages 584-597, November.
    21. Farmer, Amy & Pecorino, Paul, 2000. "Does jury bias matter?," International Review of Law and Economics, Elsevier, vol. 20(3), pages 315-328, September.

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