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Rent dissipation in share contests

Author

Listed:
  • Alex Dickson

    (Department of Economics, University of Strathclyde)

  • Ian MacKenzie

    (School of Economics, University of Queensland)

  • Petros G Sekeris

    (Montpellier Business School)

Abstract

This article investigates rent dissipation—the total costs of rent seeking in relation to the value of the contested rent—in share contests. We consider preferences that are more general than usually assumed in the literature, which allow for contestants to have diminishing marginal utility. With sufficiently concave preferences the equilibrium will feature over-dissipation if the rent is small, and under-dissipation if the rent is large: if contestants have strong diminishing marginal utility and they are contesting a small rent they are highly sensitive to changes in their allocation of the rent so are relatively effortful in contesting it; by contrast when the rent is large they are less effortful relative to the size of the rent. Thus, the inclusion of diminishing marginal utility allows us to reconcile the Tullock paradox—where rent-seeking levels are observed to be relatively small compared to the contested rent—with observed over-dissipation of rents in, for example, experimental settings. We also propose a more general rent dissipation measure that applies to any contest and is suitable for general preferences.

Suggested Citation

  • Alex Dickson & Ian MacKenzie & Petros G Sekeris, 2020. "Rent dissipation in share contests," Working Papers 2014, University of Strathclyde Business School, Department of Economics.
  • Handle: RePEc:str:wpaper:2014
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    References listed on IDEAS

    as
    1. Fallucchi, Francesco & Renner, Elke & Sefton, Martin, 2013. "Information feedback and contest structure in rent-seeking games," European Economic Review, Elsevier, vol. 64(C), pages 223-240.
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    3. Baye, Michael R & Kovenock, Dan & de Vries, Casper G, 1994. "The Solution to the Tullock Rent-Seeking Game When R Is Greater Than 2: Mixed-Strategy Equilibria and Mean Dissipation Rates," Public Choice, Springer, vol. 81(3-4), pages 363-380, December.
    4. 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.
    5. Nava Kahana & Doron Klunover, 2015. "A note on Poisson contests," Public Choice, Springer, vol. 165(1), pages 97-102, October.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Rent seeking; rent dissipation; share contests.;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H40 - Public Economics - - Publicly Provided Goods - - - General

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