Sequential Rent Seeking

We consider n firms which choose rent-seekingexpenditures sequentially, each player anticipatingthe rent-seeking expenditures that will be made bylater movers. We find that the earlier movers need notmake larger profits than later movers, and thataggregate profits are lower than in a game in whichfirms make simultaneous moves.     

Rent dissipation and efficiency in a contest with asymmetric valuations

This paper introduces contest efficiency as an alternative to rent dissipation when measuring efficiency in a contest with asymmetric valuations. Contest efficiency is defined as the expected proportion of the maximum obtainable benefit captured by the contest, and differs from rent dissipation because it values the expected winner of the contest. Therefore, rent dissipation and contest efficiency may suggest contradictory conclusions when agents have asymmetric valuations. This result is illustrated when comparing alternative equilibria in contests with asymmetric reimbursement and when analyzing the comparative static effect of a change in the relative benefit of two agents in a Cournot-Nash contest.     

Rent seeking and market competition

This paper emphasizes that political behavior of interest groups is a result of economic calculation, and therefore is affected by the market conditions under which they operate. We develop a two-stage game to link political and market decision-making. We find that if unproductive rent-seekingdirectly contributes to rent-seekers' market operations, then their lobbying efforts will be excessive if the number of outsiders is relatively large, restrained if it is relatively small. If rent-seekingdirectly impairs rent-seekers' market operations, the above described behavior will be reversed. The analysis also reveals that as wasteful rent-seeking may increase rent-seeker's production cost, market competition shifts production from now less efficient rent-seekers to their non-rent-seeking rivals. Welfare gains from this shift may overshadow the direct waste of influence activities.     

Regulatory Errors with Endogenous Agendas

How do a regulator's decisions depend on the characteristics and strategies of its external clients? We develop a theory of approval regulation in which an uninformed regulator may veto the submission of a better‐informed firm. The firm can perform publicly observable experiments to generate product information prior to submission. We find that when experimentation is short, Type I errors (approving bad products) are more likely for products submitted by firms with lower experimentation costs (larger firms), while Type II errors (rejecting good products) should be concentrated among smaller firms. These comparative statics are reversed when experimentation is long. We perform a statistical analysis on FDA approvals of new pharmaceutical products using two different measures of Type I error. We find consistent support for the counterintuitive hypothesis that, under particular conditions, errors are decreasing in the size of the firm submitting the product.     

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.     

Party Platforms with Endogenous Party Membership

This paper proposes and analyzes a model of how the behaviorof voters and that of potential party activists togetherdetermine party membership and the ideological characteristicsof party platforms. Membership decisions are based onexpressive motivations, whereas platforms are chosenstrategically. Part of the ideological spectrum may remainoutside both parties because of alienation or indifference.     

Constitutional Prohibitions in a Rent Seeking Model

I extend the standard rent seeking model to allow lobbying fora constitutional prohibition on wealth transfers. I examinetwo issues: (1) the ability of special interests withsignificant political capacity to block constitutional change;and (2) the effect of adding a constitutional stage on totallobbying expenditures. Defeating a prohibition on wealthtransfers is a public good for rent seekers; success inconstitutional politics merely allows them to lobby for wealthtransfers. The resulting collective action problem for rentseekers in constitutional politics offsets the generalinterest's free rider problems, reducing the probability oftransfers and expected total lobbying expenditures compared tothe traditional rent seeking contest. Introduction of aconstitutional stage also reverses several comparative staticsresults from the rent seeking game. An increase in the numberof rent seekers or the general interest's (consumers') abilityto organize increase lobbying in the rent seeking game butgenerally reduce expected lobbying in the constitutionalprohibition game.     

Endogenous timing of contest with asymmetric information

Simultaneous moves have been conventionally assumed in modeling rent-seeking competition. However, in reality many forms of contests involve contestants sequentially choosing their effort entries. This study allows agents to choose the timing of their moves before the contest takes place. In contrast to the previous literature, we introduce information asymmetries across agents. We find that in all sequential-move equilibria, the uninformed agent moves first. More generally we show that the order of agents’ moves in a sequential contest is a regularity stemming from information asymmetries. Furthermore, under plausible assumptions, sequential moves Pareto dominate simultaneous moves (from the view point of the players) and also result in lower rent-seeking expenditures. Our result explains the timing pattern in National Presidential Conventions observed from 1948 through 2004. Our result also applies to many other formal or informal institutions, which give rise to sequential contests.     

Rent dissipation when rent seekers are budget constrained

In the original Tullock (1975, 1980) game, an individual bidder's probability of winning with a bid b is proportional to b^R, where the exponent reflects economies of scale in rent seeking. Different interpretations can be given to these probabilities. First, one may view R as a reflection of the political culture. Alternatively, one may view R as a choice variable for a politician. Intuition suggests that a society with a high tolerance for the selling of political favors and politicians who are receptive to rent seeking would both induce greater rent-seeking expenditures than other societies, all else equal. This paper shows that a lower value of R can actually lead to more rent dissipation than a higher value. This paper also reinforces two points concerning rent seeking. First, the analysis confirms the robustness of under-dissipation of rents, even in the face of entry. Second, it points out the importance of distinguishing between rent-seeking expenditures and rent dissipation. When bidders must borrow, for example, total expenditure may understate rent dissipation.     

Efficient local charity with self-selection

How is charitable giving within a city influenced by the prospect of donor and recipient migration? The theoretical literature on charitable contributions in a closed economy has mainly argued that the market level of private giving will tend to be lower than optimal, wherever there exists a local fiscal externality between donors and recipients. Interjurisdictional models of voluntary redistribution, on the other hand, abstract from altruism to explore the interjurisdictional fiscal externality resulting from the failure of one community to account for the migration impacts of its actions on other communities. This paper integrates and extends both literatures by allowing for local altruism among the mobile residents of a system of local economies. Within a single community, mobility thus introduces adverse selection considerations for each donor via the migration of both recipients and other donors. Moreover, any change in the local transfer level influences both equilibrium wages and donor behavior system-wide. The analysis demonstrates that the market level of local charitable giving will be lower than is either ‘locally’ or ‘globally’ optimal in some cases and plausibly higher than optimal in others, depending on the effect of migration and expectations on wages. The self-selection nature of donor decision making does eliminate the usual interjurisdictional fiscal externality, though it leaves a role for government intervention via subsidies to altruistic behavior.     

Litigation Versus Legislation: Forum Shopping by Rent Seekers

To change the law, an interest group must choose between lobbyingthe legislature and litigating for new precedent. Lobbyingbecomes more likely as the relative benefits from rule changebecome greater, as the costs of lobbying become smaller and asthe voting strength of the interest groups becomes larger.Litigating becomes more likely as trial costs fall, as therelative benefits from rule change become greater, as theinclination of courts to change existing precedents increases,and as the interest group is involved in more trials. Examplesof using a litigating strategy include the NAACP is its battlefor racial integration and attorneys seeking change in tort law.Business, in resisting changes to tort law, has used the judicialprocess. The nature of equilibrium, if any, is not clear.     

Rent seeking and the welfare cost of trade barriers

This paper estimates the potential social cost of trade barriers using the Harberger and the Tullock/Posner approaches for a sample of U.S. food and tobacco manufacturing industries. In addition, it tests the relationship between the computed welfare losses and special-interest political activity (PAC contributions). If all rents were dissipated through rent seeking, the social cost of trade barriers would be about 12.5 percent of domestic consumption and would be particularly large for sugar and milk products where quotas are the main instrument of protection. Furthermore, the results indicate that welfare losses are positively associated with industry lobbying but the strength of such association is strongly dependent on industry concentration.     

Rent seeking and the decline of the Florentine school

Public Choice - Economists have claimed that the invisible hand of competition is behind the historical episodes of outstanding artistic achievement, from Shakespearean theater to musical...     

权力寻租性腐败的危害及其治理

我国改革开放20多年来,随着社会经济的巨大发展,社会主义市场经济体制的建立,由于寻求财富的利益心理驱使、法律的不健全、制度的不规范,导致了寻租性腐败的客观存在,其危害极大,解决之道在于:一是制度治理,即加入WTO后,政府应加大政策障碍的治理力度;政府应加快机构改革,朝着精简、放权、廉洁、高效的方向发展;政府应加速产权制度的改革,明确真正独立经营的市场主体,维护市场秩序;政府应建立并完善更加符合市场规律的管理机制。二是权力管理,即建立高效的权力管理制约机制,提高权力者寻租的机会成本;建立有效的监督管理机制,惩治寻租性腐败;加强权力者的教育,构筑权力者抵御寻租欲望的心理防线。     

Optimal Intergenerational Redistribution in a Two-Country Model with Endogenous Fertility

We analyze a model with two countries that are linked by anintegrated capital market. Fertility, and thus population growth, isendogenously determined by households. Our analysis proceeds inthree steps: First, we characterize an optimal intertemporal andinterregional allocation in a model with endogenous fertility andtwo countries. Second, we look for an institution supporting theoptimal allocation. It turns out that in general, a decentralizedequilibrium is inefficient. National public-pension systems withbenefits that are related to the number of children implements theoptimal allocation. This provides a justification for governmentinterventions beyond its role as a ``night-watchman.'' Third, weanalyze whether national governments have the right incentives toimplement the optimal system. It turns out that every nationalgovernment has an incentive to deviate from the optimal structureand to shift part of the burden to the other country. Policyimplications for the institutional arrangements within the EuropeanUnion are discussed.     

An Experimental Analysis of Rent Seeking Under Varying Competitive Conditions

We test several predictions of Gradstein's(1995) rent seeking model using anexperimental design that includes avariable number of participants, costheterogeneity, and an entry fee. Consistentwith theoretical predictions, costheterogeneity and the entry fee decreasethe number of participants. Overall,participation is much lower than predicted. Also consistent with Gradstein's model, wefind that rent seeking expendituresincrease with the number of competitors anddecrease with the addition of an entry fee. Experimental results do not support theprediction that cost heterogeneitygenerally decreases expenditures in rentseeking contests.     

On the Measurement of Rent Seeking and its Social Opportunity Cost

Utilizing 4-digit industry data by county,we compare the allocation of resourcesacross industries in state capital areaswith noncapital areas. We are able toidentify which industries are expanded andcontracted relative to noncapital areas. Our results provide the first directevidence and measurement of the forgoneproductive activity resulting fromresources being reallocated toward rentseeking and interest group activity. Ourdata also allow us to measure total rentseeking, and also to isolate the extent ofindirect and in-kind rent seeking, whichcan account for part of the Tullockparadox.     

Rent seeking and hidden in-kind resource distortion: Some empirical evidence

We wish to thank John Jackson, Robert Hebert, Gordon Tullock and an anonymous referee for helpful comments on earlier draft of the paper.     

Social Capital and Endogenous Preferences

In this paper we analyze whether social capital can emerge endogenously from a process of preference evolution. We define social capital as preferences that promote voluntary cooperation in a one-shot Prisoner’s Dilemma game. We investigate how the endogenous preferences depend on the amount of information individuals have about each other’s preferences. When there is sufficiently much information, maximal social capital emerges. In general, the level of social capital varies positively with the amount of information. Our results may add to an understanding of the factors that determine a society’s ability to generate cooperative outcomes.