A culture of rent seeking

Public Choice - Tullock [J Dev Econ 67(2):455–470, 1967] introduced the concept of rent seeking and highlighted the social costs associated with collecting and lobbying for or against...     

The economic theory of rent seeking

Tullock’s concept of rent seeking was the first statement of a quantitative principle about the social costs of such activities as lobbying and favor seeking. As such, this part of Tullock’s legacy to modern economics is one of his most important contributions.     

Free-riding on rent seeking—an empirical analysis

The Common Agricultural Policy is modelled as a club good providing the European Union (EU) farmer with financial benefits. We build an economic model which explains how much farmers in individual EU countries invest in rent-seeking activities in order to test for free-riding behaviour on lobbying costs. For our investigation we group the EU member countries by farm structure, and the type of benefit received. We explain the fees paid by farmers for lobbying by other countries’ fees, political variables, and country and regional agricultural characteristics. The model shows that some member countries free ride on others suggesting a form of policy path dependency.     

Bequests, sibling rivalry, and rent seeking

We examine bequest-sharing rules where sibling rivalry creates wasteful competition for intergenerational transfers. We show that equal division of bequests minimizes rent-seeking expenditures by siblings while primogeniture maximizes rent-seeking costs. Our results lend theoretical support to the empirical findings of equal bequests without appeal to complex models of the parent-child relationship.     

A general model of rent seeking for public goods

This paper generalizes the model of collective rent-seeking over a public good. Expanding the rent seeker's consumption bundle to include preferences over the public good and a private good, our results suggest collective rent-seeking is positively related to group size. Although free riding exists within a group, there is not a one-for-one tradeoff. In addition, rent seeking increases with wealth. Finally, total effort expended by both groups increases if either group increases in membership size, except in the case of an extremely lopsided contest. The key condition underlying these results is that the marginal utility of the public good is not inversely related to the private good.     

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.     

Behavioral symmetry,rent seeking,and the Republic of Science

The Olsonian distinction between roving and stationary bandits outlines the rationale behind the transition from anarchy to the emergence of the predatory state. This two-bandit model may, however, be expanded to include more bandit types. In the case of Viking Age England, local English kings were unable to monopolize violence and defend their realms against competing Viking raiders. As the Vikings’ time horizon grew, so did the accumulated value of more formal taxation, and bandit types evolved in four steps. The first step is the Olsonian roving bandit, who executed Viking hit-and-run attacks and plunders during the second half of the tenth century. The second step is the gafol bandit; gafol is payment for leaving, paid to, among others, Swein Forkbeard. The third step is the heregeld bandit; heregeld is a tax to support an army for hire; most notably Thorkell the Tall’s. The fourth step is the Olsonian stationary bandit, i.e. the strongest military leader among the Vikings, Cnut the Great, settled down as the new king. Overall, the Olsonian two-bandit model can be expanded to a four-bandit staircase model, in which the new gafol and heregeld bandit types explain the steps from anarchy and short-run raiding to long-run formal taxation in a predatory state.

     

Varying the intensity of competition in a multiple prize rent seeking experiment

We experimentally test a rent seeking model under five levels of competition. At one extreme, a subject’s probability of winning a prize is equal to her share of the total expenditures. At lower levels of competition, a subject’s probability of winning is affected more by her own expenditures than by the expenditures of others. Predicted expenditure levels are positively associated with higher levels of competition. Consistent with previous rent seeking experiments, we find that subjects spend significantly more than the Nash equilibrium prediction at all levels of competition. However, expenditure patterns generally follow the Nash prediction; expenditures decrease as the level of competition decreases. Our experimental design also includes a lottery choice experiment to control for subjects’ risk preference. We find that subjects who are more risk averse spend significantly less in the contest and this effect is particularly strong for female subjects.     

Contesting resources – rent seeking, conflict and the natural resource curse

A growing empirical literature links natural resource abundance and “pointiness” to impeded economic growth and civil strife. We develop rent seeking and conflict models that capture the most salient features of contests for resource rents, and show how both resource abundance and geographical clustering can be associated with intense contests and sub-optimal economic performance. However, we also show that these relationships are not necessarily monotonous – pointiness can trigger more intense contests but can also facilitate the coordination on peaceful outcomes. Finally we show that contesting resources through violent conflict may yield superior outcomes (from an economy-wide perspective) than contests through rent seeking.     

The evolution of sharing rules in rent seeking contests: Incentives crowd out cooperation

Modern societies are characterized by competing organizations that rely predominantly on incentive schemes to align the behavior of their members with the organizations’ objectives. This study contributes to explaining why in so many cases incentive schemes have gradually crowded out cooperation as an organization device. Our explanation does not draw on free-riding, the obvious Achilles’ heel of cooperation, but relies completely on fundamental group contest mechanisms. By investigating a canonical rent seeking model and adopting an evolutionary perspective, the analysis identifies shortcomings in previous results, sets the record straight, and explains why the process of incentivizing organizations is protracted.     

Resource allocation under uncertainty

Rarely is the informational data required for the analysis of resource allocation decisions known with precision; uncertainty in such data is the rule, and not the exception. The conventional approach relying on data averaging, even when coupled with sensitivity analysis, limits the insights obtainable. Concepts of decision analysis under uncertainty are applied here to a controllable, Markov resource-allocative model. Proper application of these concepts provide the preferred framework for resolving informational data uncertainties.     

Optimal voting rules under uncertainty

The theory of ‘constitutional’ choice of voting rules developed by Buchanan and Tullock is an extended to an explicit decision-theoretic form. Voters in the ‘constitutional’ position choose what they believe will be their optimal share or majority rule for making social decisions, by maximizing their individual expected utility from the anticipated social decisions, under conditions of uncertainty. The rule that maximizes expected social benefits depends upon (1) the expected distribution and intensity of preferences on future issues, and (2) the decisionmaking procedures and costs. ‘Decisionmaking’ and ‘external’ costs are shown to be interrelated. Following this analysis, failure to pass laws imposes ‘external’ costs in the same way that passing them does, so that the optimal majority may be lower when desirable laws are viewed as changing over time. Decisionmaking costs depend upon the way in which voters are persuaded to support or oppose bills, upon the distribution of preferences on bills, and on vote-trading possibilities. If vote-trading is almost costless, a wide range of decision rules has nearly equal social benefits. Finally, the model is used to discuss optimal voting rules for several decisionmaking bodies.     

Testing Ricardian equivalence under uncertainty

This paper uses experimental methods to analyze Ricardian equivalence when the probability of debt retirement is less than one. The results suggest that the presence of outstanding debt and the probability of debt retirement have a strong influence on savings behavior. When the probability of debt retirement is low, consumption by the current generation increases, as predicted by Keynesian theory. However, as the probability of debt retirement increases, bequests rise to offset the future generation's expected repayment liability, and deficit spending becomes much less expansionary, as predicted by Ricardian theory. In general, the average bequest is significantly larger when an outstanding debt is passed on to the next generation than when no debt exists, regardless of the probability of debt retirement. However, as long as there is some uncertainty about debt repayment, the presence of debt always stimulates some additional consumption, so that strong variants of Ricardian equivalence are not found.