Which Rectangle?: An Extension

This note examines the social cost of rent seeking when firmsseek rent by obtaining government subsidies as well as bysecuring a monopoly position. The social cost of rent seekingproves to be represented by the new Tullock rectangle.     

Tullock's rent-seeking contest with a minimum expenditure requirement

We consider a rent-seeking contest of the kind introduced by Tullock (1980) in which two players compete for a monopoly rent. We extend the contest by requiring that if a player puts forward an effort, his expenditures must be larger than or equal to some minimum level. We show that, depending on the model parameters, the number of Nash equilibria of the extended model can be zero, one, two or four. Furthermore, it turns out that the extent of rent dissipation in a Nash equilibrium of the extended model can be larger than, equal to, or smaller than the extent of rent dissipation in the unique Nash equilibrium of the original model.     

Efficient Rent-Seeking in Experiment

In a series of experiments we show that people learn to playthe efficient outcome in an open-ended rent-seeking game. Thisresult persists despite quite different experimentenvironments and designs, like different propensities ofcompetition, group sizes etc., and is interpretable as aresolution of the so-called Tullock paradox which states thatreal-world rent-seeking expenditures are much lower than whatthe standard rent-seeking model predicts.     

Imperfect rent dissipation with unionized labor

Traditional rent-seeking theory focused only on socially wasteful expenditures by firms competing for restrictive regulations. More recently, rent-defending expenditures by consumers have also been taken into account. This paper extends the analysis by adding rent-sharing expenditures by organized labor. The paper merges the Tullock lottery model and the monopoly union model and considers both a costless and a costly wage bargaining mechanism. The participation of consumers and workers in the distributional contest is shown to reduce, rather than increase, the social cost of restrictive regulations. The participation of consumers and workers also raises the probability of deregulation.     

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.     

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.     

Illegal markets and the social costs of rent-seeking

This paper argues that making goods or services illegal results in an increase in the social costs associated with rent-seeking. The increased social cost is in the form of negative externalities that result from market participants use of coercion and violence in attempts to control trade in the illegal good. Consequently, the social costs of rent-seeking will exceed the value of resources dissipated in rent-seeking competition. And, where the external costs exceed the undissipated portion of the Tullock cost, the social cost of rent-seeking is greater than the sum of Tullock and Harberger costs.     

Endogenous sharing rules in collective-group rent-seeking

This paper examines the possibility of endogenous determination of intra-group sharing rules in a collective-group rent-seeking game. Collective-group rent-seeking is considered as a two-stage Nash-Cournot game in which sharing rules are determined prior to individual decision on voluntary contribution. The solution is subgame perfect and is obtained by backward induction. In competition between two groups of the same size, the Nash equilibrium sharing rule of each group is to distribute rent to each according to relative effort. Total rent-seeking outlays in this case are equal to those obtained by Tullock (1980). When more than two groups compete for a rent, the sharing rule based on relative effort is again likely to be the Nash equilibrium strategy of each group. The amount of total rent-seeking outlays is also equal to that in Tullock (1980). In a nutshell, the rent is substantially dissipated if sharing rules are endogenously determined.     

Political instability in Africa: A rent-seeking approach

The foregoing analysis developed the paradigm of self-interest motivated revolutionary activities. In effect, the construct presented differs from the by-product theory developed by Tullock only in its specific modeling of government-created rents as the engine which drives the violent political behavior. The empirical test of the positive relationship between rent creation by the government and the amount of destabilizing political activity yields strong support for the structuring of politically destabilizing activities as rent-seeking in nature. It is the authors' hope that further empirical investigation and a more general and rigorous modeling of revolution as a rent-seeking activity will become an important part of the literature in public choice.Finally, some policy implications should be discussed. The policy emphasis for the governments of Africa countries should be on opening the economy to competition. Instituting programs to make the economic system more accessible to all segments of society would result in reduced opportunities for rent-seeking. Reducing rent-seeking should result in increased political stability. A reduction in government market intervention would also reduce the costs of government regulations on individual entrepreneurs inducing them to increase their participation in economically productive activities. Taken together the result would be increased political stability and higher rates of economic growth.     

寻租与反寻租:一个理论模型

本文试图对国内学术界偏好使用却又屡被误用的寻租理论作出学术澄清.本文认为,完整、准确的寻租理论应由如下四个命题组成:1.市场主体价值指向的租金非仅一种而是有三种,即分别由创新原因、自然原因和管制原因引致的垄断租金;2.市场主体追求创新租金的寻利行为是自由竞争条件下的正和博弈,而其追逐管制租金的寻租行为则是在不完全竞争条件下的负和博弈;3政府进行制度创新,引导市场主体从寻租走向寻利,可以实现反寻租的目的;4.由于政府同样具有理性经济人特征,通过制度创新进行反寻租有可能引起新的寻租,陷入反寻租的悖论.     

Do government subsidies increase the private supply of public goods?

Public Choice - We study three different models in which public goods are supplied by private contributions. In one of these models, tax-financed government subsidies to private contributions will...     

Rents, dissipation and lost treasures: Rethinking Tullock's paradox

In this paper we revisit Tullock's paradox (Tullock, 1980) and consider a rent-seeking game in which parties face increasing returns to effort. We allow parties to randomize their strategies and give them an exit option. Given the mixed participation strategies of the parties, valuable rents may occasionally remain unexploited. We consider such a lost-treasure effect as an additional cost of rent seeking and examine how the expected value of such a lost rent varies with changes in the parameters of the problem.     

Monopoly rent seeking under conditions of uncertainty

In recent years, economists have come to recognize that the competition to obtain monopoly rents, i.e., rent seeking, may consume resources whose value greatly exceeds that associated with traditionally measured deadweight welfare loss triangles (Tollison, 1982). Early articles by Tullock (1967), Krueger (1974), and Posner (1975) all concluded that this competition would exactly dissipate the rents sought. Later articles by Tullock (1980) and Baysinger and Tollison (1980) modified that original conclusion. The present paper develops a model which raises further doubts about the complete transformation of rents into costs. The emphasis of the analytical framework presented is on the implications of the fact that rent seekers may typically be uncertain about being able to maintain a monopoly position even if they are initially successful in attaining one. It is demonstrated that when there is even a moderate level of uncertainty about retention, the likely effect will be a relatively large reduction in the magnitude of resources invested in rent seeking activities. In addition, it is shown that the size of this waste of resources depends somewhat on the extent to which rent seeking opportunities involve once and for all transfers as opposed to flows of rents. Finally, in those cases where a flow of rents is at stake, it is shown that considerable social waste might be eliminated through institutional changes which would reduce the subjective probabilities of potential monopolists retaining their rent streams once attained.     

The number of rent-seekers and aggregate rent-seeking expenditures: An unpleasant result

I examine a rent-seeking contest in which the winner gets a minimum rent but also gets an additional rent which is an increasing function of his lobbying expenditure. I give real-world examples of such rent-seeking competitions. Contrary to the standard result in the rent-seeking literature, I obtain the perverse result that aggregate rent-seeking expenditures may be inversely related to the number of rent-seekers. However, I note that even if this result holds, the cost of administering rent-seeking competitions may imply that society is better off with fewer contenders than with an infinitely large number of contenders, although the optimal number may not be the smallest number.     

Fiscal decentralization and government size: An extension

This paper analyzes one method governments employ to circumvent the discipline of a competitive system of fiscal federalism — intergovernmental collusion in the form of intergovernmental grants. Grants, it is argued, serve to encourage the expansion of the public sector by concentrating taxing powers in the hands of the central government and by weakening the fiscal discipline imposed on governments forced to self-finance their expenditures. The results reported suggest that intergovernmental grants do encourage growth in the public sector. The results offer further support for the use of monopoly government assumptions in public sector modeling.     

Surplus Expenditures: A Case Study of Colorado

In this study the concept of surplus expenditures is introduced, and a theory of surplus expenditures is explored. The study examines the disposition of surplus revenues that emerged from the imposition of a binding tax and spending limit in Colorado. The study concludes that the accumulation of surplus revenue requires a major overhaul of budgetary reporting and decision making to reflect the impact of binding tax and spending limits on the budgetary process. The reporting recommendations are designed to make the budget more transparent and provide both taxpayers and legislators the information they need to make more rational decisions. The policy recommendations explore options for a more efficient and equitable disposition of surplus revenue.     

An analysis of rent-seeking games with relative-payoff maximizers

In this paper, we introduce relative-payoff maximizing firms into the Tullock model of rent-seeking. These firms try to realize higher (expected) payoff than other firms. As a consequence of this, the outcome of the model changes: Firms, on average, will invest more in the rent-seeking process, the rate of dissipation of the rent becomes independent of the number of rent-seekers, dissipation becomes complete in cases where underdissipation prevails in the original model.     

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.     

X-efficiency,rent-seeking and social costs

This paper investigates shifts in cost functions of monopoly and regulated firms operating under conditions of X-inefficiency and rent-seeking behavior. We show that X-inefficiency and rent seeking have significantly different implications for economic welfare. Distinctions are drawn between pecuniary and real X-inefficiency and between sunk and continuing rent-seeking costs. In general, for a given cost shift rent-seeking behavior implies larger social costs than does X-inefficiency theory. However, cost shifts caused by either X-inefficiency or rent seeking are observationally equivalent. This implies empirically measured cost shifts cannot unambiguously be attributed to either cause.     

Clientelism,corruption, and the allocation of resources

Corruption has been shown to have more serious effects upon allocation than simply drawing resources into rent-seeking activities. If politicians anticipate gains from corruption in the policy making process, sub-optimal policies will be the result. Typical examples include excessive nationalization of industry, excessive regulation of the private sector through practices such as licensing and quotas with a view to extract the rent created by these measures. In addition, further misallocation will result at the execution state. It has been shown that the revisionists were wrong in assuming that licenses and contracts will be allocated to the most efficient producers, that rent will be eliminated in government employment, and that corruption increases the efficiency of the bureaucracy. Moreover, differential access to government services leads to additional allocative losses.