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Rent-seeking with scarce talent: a model of preemptive hiring

Author

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  • Sami Dakhlia

    (University of Alabama)

  • Paul Pecorino

    (University of Alabama)

Abstract

In the standard model of a rent-seeking contest, firms optimally employ resources in an attempt to win the contest and obtain the rent. Typically, it is assumed that these resources may be hired at any desired level at some fixed, exogenous per-unit cost. In many real-world rent-seeking contests, however, these resources consist of scarce, talented individuals. We model a rentseeking contest in which the talent available for employment is scarce and in which the rent obtained from winning the contest may also differ from participant to participant. Talent scarcity leads to preemptive hiring by the player receiving the larger rent. In the traditional analysis, as the size of the rents converges, the levels of effort and the probability of winning also converge. By contrast, when talent is scarce, the player receiving the larger rent hires it all and wins the contest with probability 1. This is true even if the difference in rents is small. Interestingly, this outcome may be Pareto-inferior to the outcome associated with the interior Nash equilibrium. We also characterize the condition under which talent ceases to be scarce. For a simple rentseeking game, this requires at least 50% more talent than is employed at the interior Nash equilibrium.

Suggested Citation

  • Sami Dakhlia & Paul Pecorino, 2005. "Rent-seeking with scarce talent: a model of preemptive hiring," Microeconomics 0505002, EconWPA.
  • Handle: RePEc:wpa:wuwpmi:0505002
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    References listed on IDEAS

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    Cited by:

    1. Paul Schweinzer & Joanna K. Swaffield, 2014. "What’s in it for the firms? Living wage adoption as signal of ethical practice," Discussion Papers 14/21, Department of Economics, University of York.
    2. Stefan Szymanski, 2007. "The Champions League And The Coase Theorem," Scottish Journal of Political Economy, Scottish Economic Society, vol. 54(3), pages 355-373, July.

    More about this item

    Keywords

    rent-seeking; scarce talent; labor market; lobbying; preemptive hiring;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • J4 - Labor and Demographic Economics - - Particular Labor Markets

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