Rent-seeking and pesticide legislation

This paper provides a test of the Appelbaum and Katz (1987) rent-seeking model, in which rents are endogenous. The Appelbaum-Katz model is theoretically modified to correspond to our empirical application, in which rent-seeking and rent-avoiding coalitions are attempting to influence legislators' votes on pesticide regulations. Probit estimations are used to analyze the legislators' votes on two bills to amend pesticide legislation (a proxy for rent). Empirical results generally support the rent-seeking determinants identified in the model. Tobit estimation is used to investigate campaign contributions by the coalitions to the legislators. These contributions are a proxy for rent-seeking activities. Again, the model is supported.     

Rent-seeking contest when the prize increases with aggregate efforts

The objective of this article is to investigate contests in which efforts are productive. Tullock's standard rent-seeking model is extended by making the rent itself increase with the aggregate efforts. A positive externality is thereby introduced into the contest, because a contender's private effort in quest of the rent generates a benefit for other contenders. Coupled with a negative externality presented in the standard rent-seeking model, the net effect on the social efficiency of the contest is a priori ambiguous. It is shown that the extended contest generates socially wasteful, excessive aggregate efforts.     

Learning the structure of a simple rent-seeking game

This paper considers a form of the Tullock imperfectly discriminating rent-seeking game in which the contestants are uncertain about the value of a bias parameter in the probability of winning function. Beliefs about this unknown parameter are not constrained to be static; we consider two methods by which the players' prior beliefs on this parameter can be updated. First, we allow for information to emerge by considering the case in which the game is played twice, with the outcome of the first game known before the second begins. The identity of the winner of the first contest represents information which emerges endogenously that can be used to revise beliefs on the unknown bias parameter. Second, information can be produced outside of the model by an external agency; this gives rise to exogenous learning. We consider the consequences for rent-seeking in each of these two cases.     

The design of rent-seeking competitions

In the standard Tullock model of rent-seeking as a noncooperative game, aggregate expenditures by seekers can equal, exceed, or fall short of total rents depending on what is assumed about the number of seekers and the marginal return to a seeker's investment. If the supply of an input into the rent-seeking process is controlled by a politician who receives payment from seekers for it, the indeterminacy of the process becomes a less serious problem. He supplies it and designs the rent-seeking game to maximize his wealth. The author derives expressions for the number of seekers and the marginal return parameter which maximize the politician's wealth in one-input and two-input rent-seeking processes.     

Decision by Sortition: A Means to Reduce Rent-Seeking

This essay gives an overview of how arandomized decision mechanism (sortition)can be expected to reduce the intensity ofself-interested activity by rent-seekingfactions within democracies. The socialcosts of rent-seeking are briefly reviewed.I then make the case that randomization ofcollective decision making proceduresattenuates rent-seeking expenditures. Iillustrate the argument by reference to thehighly contested Presidential election of2000. Finally, I buttress that argument bycomparing plurality voting and sortitionwithin the context of Tullock's Efficient Rent-seeking model (1980).     

A general analysis of rent-seeking games

In this paper we reconsider the basic model of “efficient rent seeking.” We stress the importance of the shape of the players' reaction curve in order to understand the impact of the technology of rent-seeking on the structure of the outcome of the game. We give a complete characterization of the pure strategy equilibria. Moreover, the possibility of preemption by a Stakelberg leader is discussed according to the nature of the technology of rent-seeking available to the agents.     

Rent-seeking in the classroom and textbooks: Where are we after 50 years?

In this paper, we provide an overview of the influence of Tullock’s work on rent-seeking in the area of economics education. After summarizing the basic rent-seeking model in both a domestic and international context, we conduct an analysis of undergraduate and graduate textbooks in public economics. We find a majority of undergraduate texts cover rent-seeking in depth, but two texts provide zero coverage. No graduate textbook surveyed mentions rent-seeking. We conclude by summarizing the economic education literature on rent-seeking, which can be divided into either classroom experiments or popular culture examples.

     

The measurability of budget related rent-seeking

It has been suggested that the extent of rent-seeking expenditures arising from attempts to influence budget allocations should be estimated by the absolute magnitude of the observed changes in allocation. Instead, we argue that it is the extent of theex ante prospective changes that determine the level of rent-seeking, and that in the presence of countervailing activity these may be quite unrelated to the ex post observed values. We further argue that the traditional rent-seeking model of competition for a pre-specified rent is inappropriate in this context.     

The design of rent-seeking competitions: Committees,preliminary and final contests

The paper examines the common practice in multi-contest rent- seeking competitions, where “finalists” are selected, based on rent-seekers' efforts in a preliminary contest. We find that for any single-contest design, rent-seeking expenditures could be reduced by introducing a preliminary contest, if the marginal returns to rent- seeking effort in the preliminary contest is sufficiently low. In addition to other reasons, the paper argues that this may explain why such multi-contest designs are common. We argue that rent-seeking expenditure in the preliminary stage represents the cost of reducing the number of contestants. We also find that the practice of setting a higher “quality” standard in the final contest than the “quality” standard in the preliminary contest reduces rent-seeking waste. We derive an expression for the optimal number of finalists; under certain conditions we find that the optimal number of finalists is directly proportional or equal to the square root of the number of potential contestants. Finally, we show that whether rent-seeking expenditures rise or fall when the rent is awarded by a committee instead of a single administrator depends on the sensitivity of the committee relative to that of the single administrator.     

Risk-aversion and prudence in rent-seeking games

This paper considers a common n-agent symmetric rent-seeking game. It derives conditions so that risk-aversion and risk always decrease rent-seeking efforts. These conditions hold for any regular contest success function when risk-averse rent-seekers are also prudent. Under n=2, prudence is a necessary and sufficient condition for risk-aversion to decrease rent-seeking efforts compared to risk-neutrality. An intuition for this result is given based on a self-protection model.     

Self-imposed term limits

In “Reconciling voters' behavior with legislative term limits,” Dick and Lott argue that since more senior representatives are better at rent-seeking, there is an inefficient tendency to re-elect incumbents. In their model, term limits are preferred collectively by constituencies, even though no constituency would independently oust its incumbent representative. However, many term limits are unilaterally self-imposed (in particular the 22nd amendment limiting presidents' terms to two), and their model cannot explain these limits. In this comment, I suggest that term limits may be self-imposed by risk-averse voters, who prefer cycling between left and right wing candidates to a once-and-for-all election that imposes a candidate of a single ideology on the entre electorate. The market failure that makes term limits helpful is that out of power minorities cannot bribe the median voter.     

Rent seeking and rent setting with asymmetric effectiveness of lobbying

This paper provides a more general model of the determination of rent-seeking costs by combining the following features: endogenous rent determination, asymmetric effectiveness of contending agents in their lobbying efforts, and multiple periods. In doing so, the paper generalizes some aspects of the work of Applelbaum and Katz (1987), Rogerson (1982), Leininger (1992) and Kohli (1992). Some results obtained are: (i) in the short run, when the regulator's salary is higher than in an alternative occupation, both the per unit cost of rent-seeking and the total rent set by regulator are highest for the same value of the relative effectiveness parameter; (ii) in the long run, an increase in the effectiveness parameter leads to a reduction in the social costs of rent seeking; (iii) in a repeated game, the equilibrium rent is lower the higher is the regulator's discount factor.     

Price discrimination in a rent-seeking economy

This paper examines the incentive and the consequences of using discriminatory pricing by a monopolist in a rent-seeking economy. It is shown that, even if all consumer groups' demands have identical elasticities at any given price, the monopolist has an incentive to charge a lower price to high pressure consumer groups so as to alleviate their rent-seeking efforts in challenging its monopolistic power. Furthermore, it is shown that by allowing the firm to price discriminate total welfare may increase, even if all rent-seeking expenditures are completely wasteful.     

Unions and Market Integration in Contests

In this paper, we study the effects of introducing endogenous costs in aTullock model of rent-seeking. We show that unions can be efficiencyimproving, and that the firms' levels of effort depend more critically uponthe number of firms participating in the contest when unions are present. Wethen study the effects of market integration in a two-country setup.Integrating two initially separate markets is shown to decrease union setwages, but is nevertheless beneficial to firms of both countries only if thereare sufficiently few contestants. However, unions and firms in one countrymight benefit from integration if their resident country is sufficiently largecompared to the post-integration market.     

Asymmetric Rent-Seeking with More than Two Contestants

This article considers a rent-seeking model with N asymmetriccontestants. Each contestant may have a different valuation ofthe rent or a different relative ability to win the rent. Oneof the N contestants is selected as the winner based onTullock's probabilistic contest rule with constant returns toscale. A pure strategy Nash equilibrium solution is obtainedand its consequences are investigated.     

Cultural institutions and value formation on the art market: A rent-seeking approach

The formation of value in the artistic market can be specifically affected by the behavior of cultural institutions, acting on it as monopolistic quality certifiers. The rent-maximizing strategy limits quantities to sub-optimum levels and keeps prices and costs higher. This can be worsened by institutional rent-seeking. The establishment's strategies cannot always be matched through public policies, because this can result in an increase of monopoly social losses and of the establishment's lobbying efforts.     

The solution to the Tullock rent-seeking game when R>2: Mixed-strategy equilibria and mean dissipation rates

In Tullock's rent-seeking model, the probability a player wins the game depends on expenditures raised to the power R. We show that a symmetric mixed-strategy Nash equilibrium exists when R>2, and that overdissipation of rents does not arise in any Nash equilibrium. We derive a tight lower bound on the level of rent dissipation that arises in a symmetric equilibrium when the strategy space is discrete, and show that full rent dissipation occurs when the strategy space is continuous. Our results are shown to be consistent with recent experimental evidence on the dissipation of rents.     

Crowding-out in productive and redistributive rent-seeking

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 “redistributive rent-seeking” and “productive rent-seeking” 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 “lost treasure” 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.     

Lowering the Cost of Pollution Control Versus Controlling Pollution: A Comment

Dwight Lee (1999) shows that thecollectivity may be better, not worse off,when a technically ``inefficient'' pollutionabatement technology is adopted. Thepurpose of this note is twofold. First, toshow that once rent-seeking is incorporatedinto the analysis, Lee's qualified supportfor a technically inefficient pollutionabatement technology is at bestproblematic, and at worst flawed. Second,to demonstrate that it is possible to makea less problematic normative case in favourof the adoption of the technicallyinefficient abatement policy.     

When are stable rights to rents bad?

Stable, enforceable property rights over resources normally furthers economic efficiency. I argue that stable rights to government created rents and wealth transfers, by contrast, generate inefficiency. Secure rights to receive transfers increases rent-seekers' incentive to make political investments creating new transfers. I demonstrate the point using a two period rent-seeking game. Contestable transfers reduce the probability of establishing a transfer program and aggregate rent-seeking expenditures. Strengthening transfer recipients' rights increases the difficulty of eliminating a transfer program.