Sequential Contests

We compare expected rent-seeking expenditures and efficiencyof simultaneous versus sequential rent-seeking contests. We find that when two risk neutral ex ante identical agents are competing,sequential contests are ex ante Pareto superior tosimultaneous contests. We then endogenize the timing decisionof rent-seeking expenditures and show that with ex anteidentical contestants, all subgame perfect equilibria of thisgame are sequential contests.     

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.     

Competitive-share group formation in rent-seeking contests

We examine the possibility of forming a competitive-share group in rent-seeking contests. The competitive-share group has the following characteristics: (a) the group is treated as a single player competing with the nonmembers to win the rent, (b) the members choose their outlays noncooperatively, and (c) the members compete to take larger shares of the rent. We show that the competitive-share group is always formed voluntarily. One important consequence of such group formation is that rent dissipation is less relative to individual rent seeking — in other words, the social cost associated with rent seeking is less.     

Efforts in two-sided contests

The degree of rent dissipation is studied in extended two-sided contests that involve two types of efforts. While usual contestants expend resources in trying to win the contested prize, potential recipients of the rent-seeking efforts also participate in the contest. This is due to uncertainty regarding the source of power in the contest that induces the bureaucrats to expend resources to increase their share in the rent-seeking efforts by trying to appear as the party controlling the allocation of the prize. We show that the existing theoretical and empirical studies are incomplete and may underestimate the extent of rent dissipation.     

The strategic advantage of interdependent preferences in rent-seeking contests

We study rent-seeking contests, where the set of players contains two groups of players – one with independent preferences and the other with (negatively) interdependent preferences. It turns out that the latter experience a strategic advantage in general two-player contests and in n-player-contests with non-increasing marginal efficiency. For general n-player contests with increasing marginal efficiency, the strategic advantage prevails provIDed convexity of contest technologies is sufficiently weak. For strongly convex contest technologies, other types of equilibria exist, including one where indivIDualists receive strictly higher pay-off.     

Rent-seeking contests with private values and resale

This paper studies rent-seeking contests with private values and resale possibilities. With a stochastic success function, the resulting possible inefficiency creates a motive for aftermarket trade. Players’ valuations are determined endogenously when there is an opportunity of resale. We characterize symmetric equilibria. We assume that the winner has full bargaining power, but the results extend to other resale mechanisms. We show that resale enhances allocative efficiency ex post at the expense of more social resource waste since players compete more aggressively with resale possibilities.     

Rent-seeking contests with incomplete information

We consider rent-seeking contests with two players who each have private information about their own cost of effort. We consider both discrete and continuous distributions of costs and give results for each case, focusing on existence of equilibrium.     

Risk Aversion,Heterogeneity and Contests

We introduce a novel method of modellingcontests that avoids the complexitiesencountered by the `best response function'approach. We analyse contests in which (i)there are many risk averse players, (ii)attitudes to risk may differ acrossindividuals, and (iii) the technology thattransforms rent-seeking effort intoprobability of winning may also differacross individuals. We establish that, ifevery player has a constant degree ofabsolute risk aversion, a uniqueequilibrium exists. We also establishcomparative static results and examine howthe level of rent dissipation is affectedby the heterogeneity of attitudes towardsrisk and the precise nature of the technology.     

Legal expenditure as a rent-seeking game

Legal expenditures at a civil trial constitute an interesting type of rent-seeking contest. In civil litigation there is a natural interaction between the objective merits of the case and the outcome of the contest. Institutions such as fee shifting do not generally have a counterpart in other rent-seeking contests. The endogenous decision to participate in the rent-seeking contest corresponds to the decision by the plaintiff to bring a case, and the decision by the defendant to defend it. The desirability of fee shifting is very sensitive to the value of the parameter which describes the legal technology.     

Rent-seeking contest when the prize increases with aggregate efforts

The objective of this article is to investigate contests in which efforts are productive. Tullock's standard rent-seeking model is extended by making the rent itself increase with the aggregate efforts. A positive externality is thereby introduced into the contest, because a contender's private effort in quest of the rent generates a benefit for other contenders. Coupled with a negative externality presented in the standard rent-seeking model, the net effect on the social efficiency of the contest is a priori ambiguous. It is shown that the extended contest generates socially wasteful, excessive aggregate efforts.     

On the formation of alliances in conflict and contests

This paper examines the problem of the formation of alliances in conflict and, more generally, in contests with three players. Each player possesses an exogenous strategic endowment (e.g., arms, efforts, rent-seeking activity). The outcome of contests, including those between any alliances of players, is governed by a Contest Success Function (CSF). In the three-person/one-cake problem an alliance between two players against the third one will form if and only if the CSF has an increasing returns characteristic. When an alliance forms, there is a tendency to be formed by the weaker players against the strongest player. Similar tendencies exist in other three-person problems that I examine.     

Contests with an unknown number of contestants

This paper studies rent-seeking contests where the contestants do not know the number of actively competing contestants. Two models are compared. In the first, all players are risk neutral; in the second, all have constant absolute risk aversion. If the expected fraction of active contestants is low, an increase in the number of potential contestants increases individual rent-seeking efforts. This effect is in contrast to the complete information case where individual rent-seeking efforts decrease in the number of contestants. The effect is more likely under risk neutrality, but also possible under risk aversion. Equilibrium rent seeking efforts are lower under risk aversion if and only if the expected fraction of active contestants is low.     

Crowding-out in productive and redistributive rent-seeking

This paper presents a general rent-seeking model in which participants decide on entry before choosing their levels of efforts. The conventional wisdom in the rent-seeking literature suggests that the rent dissipation increases with the number of potential participants and with their productivity of effort. In this paper, we show that this result of the rent-seeking literature is far from general and applies only when participants are relatively weak and enter the game with certainty. In the presence of strong competitors, the expected total dissipation actually decreases, since participation in the game is less frequent. We further consider the impact of competitors’ exit option, distinguishing between “redistributive rent-seeking” and “productive rent-seeking” situations. In redistributive rent-seeking, no social loss results from the fact that all competitors exit the race. In productive rent-seeking, instead, lack of participation creates a social loss (the “lost treasure” effect), since valuable rents are left unexploited. We show that the lost-treasure effect perfectly counterbalances the reduction in rent dissipation due to competitors’ exit. Hence, unlike redistributive rent-seeking, in productive rent-seeking the total social loss remains equal to the entire rent even when parties grow stronger or the number of players increases.     

Sent Seeking With Private Values

We study a rent-seeking contest in which the players'valuations of the prize are private information. We determinea Bayesian equilibrium and give conditions under which theequilibrium exists. Although players are ex ante symmetric,increased possibilities for ex post lopsidedness lead toless aggressive bidding. (Lopsidedness increases as players'values become less positively correlated or as the variationin possible values increases.) We also compare theprivate-information contest to a related public-informationcontest in which the realizations of values are commonknowledge. The contests are equally efficient and players areindifferent between the two, but risk-averse sellers of theprize are not.     

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.     

Some Implications of Corporate Taxation for Rent-Seeking Activity

In this paper we show that corporate taxes are likely to have considerable implications for rent-seeking activity. We find that corporate taxation tends to significantly reduce rent-seeking, and that it favors rent-seeking by established firms and discriminates against new and zero profit firms. Indeed, we show that corporate tax regulations may completely block rent-seeking by new corporations, and that rent-seeking competitions may be characterized by an equilibrium that features a small number of profitable and well established firms. Tax regulations may therefore impart an oligopolistic tendency to rent-seeking markets. Moreover, our results may have significant implications for the effects of corporate taxes on patent races, tournaments, and other first-past-the-post competitions.     

Asymmetry and Corrective Public Policy in Contests

The proposal of an inefficient policyusually stimulates a political strugglebetween the affected interest groups. Theresulting wasteful lobbying activities mayreduce welfare, even if the proposed policyis not approved. In this paper weshow that sufficient asymmetry in payoffsnot only tends to reduce lobbying effortsin standard rent-seeking contests, as iswell known, but it is, in fact, a necessarycondition for the implementation of asuccessful effective correctivetax-transfer policy that complements theproposal of the inefficient policy. Such apolicy induces an efficient equilibriumoutcome which is, in addition, optimal fromthe viewpoint of the players that take partin the public-policy game.     

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.     

Strategic entry deterrence and terrorism: Theory and experimental evidence

Using a two stage rent-seeking framework, we present a simple model of strategic entry/terrorism deterrence and test the model using laboratory experiments. Our contest success function highlights the potential for strategic spillovers. The theory illustrates that, relative to a cooperative outcome, negative externalities lead to over-spending on deterrence and positive externalities lead to under-spending on deterrence. Our experimental results are broadly consistent; subjects in the negative externality treatment had higher expenditures. In contrast to theoretical predictions, participation decisions, while primarily driven by the probability of winning a contest, were influenced by a subject’s ability to participate in multiple contests.     

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.