A comparison of rent-seeking models and economic models of conflict

This paper provides a comparative analysis of the basic rent-seeking model and a simple economic model of conflict. Each model is concerned with a game in which players invest resources in pursuit of a prize. The purpose of the analysis is to elucidate structural differences between the two models, and to analyse the consequent behavioral differences and equilibrium outcomes in the two cases. A key finding is that, where such comparisons are possible, the conflict model tends to involve greater relative expenditure on wealth-redistribution activities than does the rent-seeking model.     

Governance and transnational civil society: the problem of transnational rent-seeking

The expansion of transnational civil society challenges the regulatory reach of nation-states, both individually and collectively. One regulatory challenge is that transnational civil society organizations (TCSOs) can avail of opportunities to engage in, or facilitate, transnational rent-seeking in ways which benefit a small group of organizations or individuals but which impose significant social costs. This article suggests that certain roles played by TCSOs lend themselves to rent-seeking behaviour and it explores the hypothesis that TCSOs can engage in, or facilitate, transnational rent-seeking where they constitute transnational special interests and/or private transnational authorities. To this end, the article outlines a brief theoretical framework and applies it to case studies of two TCSOs, representing transnational trade associations and industry lobbies, and sports associations and regulators. While the conclusions here are tentative, the article argues for further research including refinement of the theoretical framework and empirical testing.     

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.     

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.     

Soviet venality: A rent-seeking model of the communist state

While the recent Fall of Communism has focused the interest of economists on the admittedly fascinating problems associated with the ongoing economic reform process, the study of the functioning of actual communist economies still seems mired in the conventional model of central planning. This model is predicated on the assumption that communist rulers are unselfish drones who single-mindedly maximize the public interest. Our article proposes an alternative, public choice model. We suggest that the Soviet-style system represents a modern incarnation of the mercantilist economies of sixteenth- and seventeenth-century Europe, and that venality, not ideology, drives these economies in practice.     

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.     

Concealed takings: Capture and rent-seeking in the Indian Sugar Industry

This paper has attempted to test the applicability of the Public Choice approach in explaining regulation in the Indian Sugar Industry over the 1967–82 period. A test for discriminating between Public Interest and Capture theories of regulation was developed and implemented in the context of the historical pattern of controls found in the Indian Sugar Industry. The results point toward the rejection of the Public Interest theory of regulation and are consistent with the hypothesis of the capture of regulation by the regulated industry. The importance of the various interest groups and their influence on the regulation actually enacted was also revealed by the analysis.The findings are consistent with the existence of substantial rent-seeking and other D.U.P. activity (Bhagwati, 1982) in the Indian sugar sector during the post-independence period. They point toward the substantial welfare losses suffered by consumers and the economy at large as a result of the control regime that has existed in the Indian sugar sector. Removal of such controls will more than likely increase the availability of sugar at lower prices thus increasing the welfare of consumers while reducing the extent of corruption and other rent-seeking activity that the controls have generated.     

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.