Rent-seeking and reorganisation of administrative units

We examine whether rent-seeking incentives shape a central planner's decision to reorganise administrative units. In a two-stage group contest, risk-neutral administrative units compete for shares of a perfectly divisible public fund, with inter-unit and intra-unit contests occurring in Stages 1 and 2, respectively. We identify the conditions under which the planner prefers reorganisation and analyse its impact on aggregate and stage-wise rent accumulation. We show that total rent accumulation depends on the interplay between changes in fractionalisation, population inequality, and the scale effect from changes in the total population of active units following a reorganisation. While a proliferatory reorganisation (i.e., increasing the number of administrative units), when all administrative units remain active, increases the planner's rent accumulation, it can overturn the loss in social welfare under certain conditions. Furthermore, when some units become inactive, then under mild conditions on population changes, this outcome persists if the reorganisation is effectively expansive.