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Crowding-out in productive and redistributive rent seeking

  • Giuseppe, Dari-Mattiacci
  • Bruno, Lovat
  • Eric, Langlais
  • Francesco, Parisi

This paper presents a general rent-seeking model in which participants decide on entry before choosing their levels of efforts. The conventional wisdom in the rent-seeking literature suggests that the rent dissipation increases with the number of potential participants and with their productivity of effort. In this paper, we show that this result of the rent-seeking literature is far from general and applies only when participants are relatively weak and enter the game with certainty. In the presence of strong competitors, the expected total dissipation actually decreases, since participation in the game is less frequent. We further consider the impact of competitors' exit option, distinguishing between \textquotedblright redistributive rent-seeking\textquotedblright\ and \textquotedblright productive rent-seeking\textquotedblright\ situations. In redistributive rent-seeking, no social loss results from the fact that all competitors exit the race. In productive rent-seeking, instead, lack of participation creates a social loss (the \textquotedblright lost treasure\textquotedblright\ effect), since valuable rents are left unexploited. We show that the lost-treasure effect perfectly counterbalances the reduction in rent dissipation due to competitors' exit. Hence, unlike redistributive rent-seeking, in productive rent-seeking the total social loss remains equal to the entire rent even when parties grow stronger or the number of players increases.

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File URL: http://mpra.ub.uni-muenchen.de/1151/1/MPRA_paper_1151.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1151.

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Date of creation: 20 Oct 2004
Date of revision: 14 Nov 2006
Handle: RePEc:pra:mprapa:1151
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  1. Robert Tollison, 2012. "The economic theory of rent seeking," Public Choice, Springer, vol. 152(1), pages 73-82, July.
  2. Amegashie, J Atsu, 1999. " The Number of Rent-Seekers and Aggregate Rent-Seeking Expenditures: An Unpleasant Result," Public Choice, Springer, vol. 99(1-2), pages 57-62, April.
  3. Kovenock, D. & de Vries, C.G., 1995. "The All-Pay Auction with Complete Information," UFAE and IAE Working Papers 311.95, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
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  5. Demsetz, Harold, 1976. "Economics as a Guide to Antitrust Regulation," Journal of Law and Economics, University of Chicago Press, vol. 19(2), pages 371-84, August.
  6. Baye, M.R. & Kovenock, D. & De Vries, C.G., 1993. "The Solution to the Tullock Rent-Seeking Game when R > 2: Mixed Strategy Equilibria and Mean Dissipation Rates," Papers 10-93-9, Pennsylvania State - Department of Economics.
  7. Posner, Richard A, 1975. "The Social Costs of Monopoly and Regulation," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 807-27, August.
  8. Gene Grossman & Elhanan Helpman, 1994. "Electoral Competition and Special Interest Politics," NBER Working Papers 4877, National Bureau of Economic Research, Inc.
  9. Stephen Coate, 2004. "Political Competition with Campaign Contributions and Informative Advertising," Journal of the European Economic Association, MIT Press, vol. 2(5), pages 772-804, 09.
  10. Baye, Michael R & Kovenock, Dan & de Vries, Casper G, 1999. " The Incidence of Overdissipation in Rent-Seeking Contests," Public Choice, Springer, vol. 99(3-4), pages 439-54, June.
  11. repec:ner:tilbur:urn:nbn:nl:ui:12-377557 is not listed on IDEAS
  12. Arye Hillman & Dov Samet, 1987. "Dissipation of contestable rents by small numbers of contenders," Public Choice, Springer, vol. 54(1), pages 63-82, January.
  13. Perez-Castrillo, J David & Verdier, Thierry, 1992. " A General Analysis of Rent-Seeking Games," Public Choice, Springer, vol. 73(3), pages 335-50, April.
  14. Rowley, Charles K, 1991. " Gordon Tullock: Entrepreneur of Public Choice," Public Choice, Springer, vol. 71(3), pages 149-69, September.
  15. Appelbaum, Elie & Katz, Eliakim, 1986. "Rent seeking and entry," Economics Letters, Elsevier, vol. 20(3), pages 207-212.
  16. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
  17. repec:dgr:uvatin:19970045 is not listed on IDEAS
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