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.     

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.     

Rent-seeking and the two-track price system in China

A simple general equilibrium model is specified to analyse the impact on the Chinese economy of the introduction of a two-track price system on to a centrally-planned economy. It is shown that national income will rise as a result together with a fall in the costs associated with rent-seeking. Some estimates of welfare gains and costs of rent-seeking are provided for seven commodities within a partial equilibrium framework. They are shown to be dependent on the price elasticities of demand and supply. The latter determine the ratio of plan to market prices and the share of plan in total output.     

On the limits to rent-seeking waste

The general equilibrium framework developed in this paper for analyzing the limits to rent-seeking waste goes beyond the existing literature by incorporating tax-financed, public subsidies and rent-protecting activities into a rent-seeking environment. We show that the limits to rent-seeking waste depend on the extent to which government subsidizes rent seekers and rent defenders through tax-financed grants, contracts and favors. As observed by Tullock (1967), the diversion of resources toward efforts to acquire a monopoly rent causes a social waste in addition to the excess burden of monopoly pricing measured by the Harberger triangle. In the absence of government subsidies to rent-seeking and under competitive conditions, this additional waste cannot exceed the maximum monopoly rent attainable. However, if government subsidizes expenditures on rent-seeking, then the additional waste can exceed the Tullock rectangle of monopoly rent and, in the limit, equal the economy's maximum potential social surplus.Rent avoidance expenditures reduce the rent to be captured and thus discourage rent-seeking. If rent avoidance is a relatively efficient mechanism for transferring consumer surplus to rent granters, then rent-seeking expenditures are displaced by less wasteful expenditures on rent defending. As a result, under competitive conditions, unsubsidized demand for private rent protection may be socially efficient. Nonetheless, the upper limit to rent-seeking waste depends on constitutionally determined maximum rates of public subsidies to rent-seeking and rent-avoidance activities.     

Rent-seeking and X-inefficiency

This paper discusses the social cost of monopoly with special attention given to the geometric representation of that social cost, notably rent-seeking and X-inefficiency. The possibility of an overlap between these two measures is examined. In particular the paper addresses a problem of measure identification which highlights the need to reconsider the normative microfoundations of rent-seeking.     

Which rectangle?

The rent-seeking analysis is extended to cases where there is a subsidy instead of a government provided monopoly. The case where there are both is also covered. In general the analysis is the same as in cases of monopoly, although there are differences in detail.     

Improper Selection of High-Cost Producers in the Rent-Seeking Contest

The resources two rival businesses spend to raise their own chanceof getting a unique monopoly license are a cost of rent-seeking.When those businesses differ in the costs of producing themonopoly good there is an additional cost of rent-seeking that hasnot been sufficiently studied in the literature. If the high cost producer winsthe license, the difference between his cost and the costs of hismore efficient rival is a social loss from improper selection ofproducers by the political process. The loss becomes more severewhen the ability to lobby of the inefficient producer outstripsthat of the efficient producer. This may help to explain whyspecialized lobbying evolved. Specialized lobbying reduces thesocial cost from improper selection of firms by allowing efficientproducers to hire expert rent-seekers and so to raise theirchances of gaining monopoly concessions.     

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.     

How organizational structure can reduce rent-seeking

In multi-tiered organizations, individuals can engage in unproductive rent-seeking activities both within and between the divisions of the organization. Nevertheless, a multi-tiered organizational structure can induce efficiency gains by decreasing rent-seeking. We present a model of production and simultaneous internal and external rent-seeking, assuming a logistic contest success function. In equilibrium, there is generically either internal or external rent-seeking, but not both. A multi-tiered organization leads to less rent-seeking and higher welfare, even though the production technology gives no reason for any specific organizational structure. Our findings constitute a new efficiency rationale for multi-tiered organizations.     

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.     

Corruption and Rent-Seeking

The rent-seeking theory was one of thefirst economic instruments developed tomodel corruption in the public sector.Comparing corruption with lobbying, itproposes that the former is the lesser oftwo evils, since lobbying entails the wastage of resources inthe competition forpreferential treatment. This study showsthat the traditional rent-seeking theorymisunderstands three factors: first, theimpact of a corrupt monopoly on the rent'ssize; second, corruption as a motivationfor supplying preferential treatment andthird; that corruption involves a narrowerrange of interests than those ofcompetitive lobbying. Taking these factorsinto consideration, the opposite argumentis valid: corruption has worse welfareimplications than alternative rent-seekingactivities.     

Deregulation redux: does mandating access to bottleneck facilities necessarily improve welfare?

We demonstrate that deregulation in the form of vertical separation of network components into natural monopoly and potentially competitive markets does not truly represent a lessening of regulatory burdens. That is, vertical separation is not synonymous with deregulation; “more competitors” is not equivalent to “more competition”. We assume a public interest regulator that is constrained to set a unit price that maximizes expected welfare subject to a break-even constraint. We show that under both symmetric and asymmetric information cases the information demands on the regulator of the vertically integrated system are no greater than those in the case of vertical separation.     

Risk aversion and rent-seeking: An extension and some experimental evidence

Theoretical investigations indicate that the risk attitudes of individuals will effect the amount of rent that can be assumed to be dissipated by rent-seeking activities. Following this line of investigation we extend Hillman and Katz's work to a small numbers case and demonstrate that the degree to which a monopoly rent is dissipated is dependent upon the structure of the risk attitudes of two risk averse individuals.Our earlier laboratory results were evaluated with respect to the risk neutral Cournot-Nash predictions. However, given the uncertainty present in the rent-seeking experiment, our ability to reject these risk neutral predictions may not be, in fact, a failure for the model but a result of risk aversion. In laboratory experiments in which we control for the relative risk attitudes of individual agents, we show that risk aversion matters. The relative risk aversion of individuals affects the level of rent-seeking activity and the extent to which rents are dissipated. In our experiments, the relatively less risk averse individuals dissipated relatively more rent.     

Consumer resistance and monopoly behavior under franchise contestability

The probability of a deregulation under anti-monopoly consumer lobby is generated at the Cournot-Nash equilibrium of a lobbying game which depends on the monopoly rent and the deadweight loss. This probability is increasing and convex in monopoly price. When the deregulation probability constraint is binding, the monopolist's price rises with the number of consumers, the competitive price and the given ceiling probability. The social cost of a monopoly under franchise contestability differs from the Posner measure.     

Rent dissipation through self-regulation: The social cost of monopoly under threat of reform

This piece offers an alternative perspective on the social cost of monopoly and rent seeking. An existing monopolist whose right is contested in a political market has an incentive to expend resources on direct lobbying efforts while also attempting to defuse reformist opposition. Because the strength of reformist opposition will generally be a function of the monopolist's past, present, and expected future pricing/output decisions, such opposition is endogenous. The probability that an existing monopoly right will be retained depends on both direct lobbying efforts by the monopolist as well as the strength, resolve, and cohesiveness of the reformers. By modifying its output/pricing decision and, in effect, engaging in self-regulation, the monopolist gives up current profits in exchange for the expected future profits associated with retaining its monopoly rights. Such opposition dissipating effort is a form of indirect rent seeking that is complementary to direct lobbying efforts. And unlike the Tullock costs implied by the incumbent's direct lobbying, this form of indirect rent seeking may imply a reduction in the social cost of monopoly.     

Tollison costs and technological innovation: The case of environmental regulation

This paper departs from the Tullock cost paradigm that views competition for monopoly privilege as a welfare-inimical process that wastefully dissipates preexisting producers' surplus and, occasionally, leads to inefficient increases in costs and counterproductive uses of scarce resources. The potential availability of rent-seeking may bring about the elimination of inefficient regulatory regimes that retard or prevent the introduction of cost-reducing innovations. Air quality management is but one area in which innovation rent-seeking holds promise for concrete welfare gains. Researchers may wish to focus on institutional mechanisms designed to overcome the transactions costs and free rider disincentives to the formation of a coalition to seek innovation rents. An example of such a mechanism might be a joint venture that requires all venture members to engage in lobbying and to contribute to collective research efforts. These unaddressed questions await future research.The authors are grateful for the insightful comments of Gordon Tullock, Robert D. Tollison, Michael T. Marlow and J.R. Clark. The usual caveats apply. The views expressed herein are solely those of the authors and should not be taken to represent the views of their employers.     

论行政执法中的“分级寻租”与解决策略——“钓鱼执法”及其一般性理论解释

黑车钓鱼执法隐藏着执法者的私利,事实上是执法目标——维护公共利益被执法者个人目标所替代。黑车与打击黑车的持续存在表明黑车经营者与执法者之间存在博弈均衡。这种均衡正是执法者寻租的结果。准入制度造成出租车市场供应不足,价格上升,为在位经营者带来超额收益,使出租车市场产生了初级寻租;而执法者则利用打击黑车的权力在市场中进行次级寻租——这使出租车市场中的寻租变成了分级寻租。这两种寻租行为都是制度安排的结果,初级寻租是准入制度的直接产物,而次级寻租则是在执行中产生的变体。分级寻租对进入门槛低却实行准入制度的市场具有普适性,应当通过取消准入许可、实行绩效预算和加强监督来予以解决。     

Rent-seeking with asymmetric valuations

This paper analyzes Tullock's rent-seeking game with asymmetric valuations for a variable range of the returns to scale parameter. A necessary and sufficient condition for a unique pure strategy Nash equilibrium is established. Equilibrium effort and expected profits are determined and subjected to comparative statics analysis. Increasing the underdog's valuation induces both players to increase their efforts. Increasing the favorite's valuation increases his effort but decreases the effort of the underdog. Expected profits increase with a player's valuation but decreases with the valuation of the competitor. The impact of the returns to scale parameter is also analyzed.     

Enhancing Efficiency or Crying over Spilled Milk: The Benefits of Reform

We analyze the welfare gains from the reform of existinggovernment-induced distortions. Our results provide support forpolicies aimed at eliminating monopoly and other types of economicdistortion. Welfare gains over the status quo exist wheneverderegulation occurs. The threat of deregulation can induce amonopoly or cartel to modify its behavior, so a reform policy canprove beneficial even if reform does not actually occur. Optimalpolicy with commitment in fact allows a monopoly to deterderegulation. The possibility of reregulation does not reverse ourresults; the per period welfare gain from reform remainsundiminished.     

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.