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.     

Rents, dissipation and lost treasures: Comment

In an interesting recent paper, Dari-Mattiacci and Parisi (2005) extended Tullock's (1980) rent-seeking game with an entry decision. The mixed strategies identified by Dari-Mattiacci and Parisi for the case of increasing returns in the contest success function (r2) do not constitute an equilibrium of the game they study. However, these strategies are an equilibrium if the strategy space of the game is restricted by a minimum expenditure requirement, and this minimum expenditure requirement is an element of a specific interval.     

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.     

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.     

The measurability of budget related rent-seeking

It has been suggested that the extent of rent-seeking expenditures arising from attempts to influence budget allocations should be estimated by the absolute magnitude of the observed changes in allocation. Instead, we argue that it is the extent of theex ante prospective changes that determine the level of rent-seeking, and that in the presence of countervailing activity these may be quite unrelated to the ex post observed values. We further argue that the traditional rent-seeking model of competition for a pre-specified rent is inappropriate in this context.     

Risk-aversion and prudence in rent-seeking games

This paper considers a common n-agent symmetric rent-seeking game. It derives conditions so that risk-aversion and risk always decrease rent-seeking efforts. These conditions hold for any regular contest success function when risk-averse rent-seekers are also prudent. Under n=2, prudence is a necessary and sufficient condition for risk-aversion to decrease rent-seeking efforts compared to risk-neutrality. An intuition for this result is given based on a self-protection model.     

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.     

Rent-seeking and the behavior of regulators: An empirical analysis

The main contribution of this paper is to describe empirically how the rent-seeking process takes place in a regulated industry through the consistency in Board decisions. Evidence provided by discrete-choice decision models of regulators confirms that the conventional rent-seeking view of regulation is correct, namely to distribute wealth between various groups differently from what market forces would do. First of all, the structure of the rent-seeking activities in the Quebec regulated trucking industry is well explained. There exist behavioral uniformities (Russell and Shelton, 1974) in decisions taken by the Quebec Transport Commission, given its wide range of choice provided by the absence of detailed regulatory standards by the Quebec legislature. Secondly, trucking firms and large shippers are the interest groups seeking to extract artificially contrived rents. The capture theory of regulation is not a dominant political strategy and therefore does not analytically explain various trades taking place among interest groups when a permit authority is requested. So logrolling by regulators is clearly essential to maintain their non-transferable investment of time and talent and protect their political afterlife. Thirdly, large firms are more successful, at the margin, than small firms in their expansion because of their political effectiveness. The regulatory agency gives more rents to those who offer relatively strong electoral support to its party. Finally, appointed regulators do not achieve other positive payoffs from the regulatory process than those which may result from the agency problem. So the regulatory agency does not promote its own policy agenda, but rather that of the elected politicians, given the organizational and control problem between these two.I am indebted to the Social Sciences and Humanities Research Council of Canada for its financial support, to Gérard Bélanger, Jean-Luc Migué for helpful comments and to Sylvain Veillette, Pascal Migué, Marc Leduc for valuable research assistance. I benefitted from useful comments by the editor of this journal. All the remaining errors are mine.     

When are stable rights to rents bad?

Stable, enforceable property rights over resources normally furthers economic efficiency. I argue that stable rights to government created rents and wealth transfers, by contrast, generate inefficiency. Secure rights to receive transfers increases rent-seekers' incentive to make political investments creating new transfers. I demonstrate the point using a two period rent-seeking game. Contestable transfers reduce the probability of establishing a transfer program and aggregate rent-seeking expenditures. Strengthening transfer recipients' rights increases the difficulty of eliminating a transfer program.     

A generalized model of rent-seeking behavior

In this paper I present a formal analysis of rent-seeking games in which the players' valuations for the prize are represented as vectors. The players in this game are risk neutral and may not be indifferent to who wins the contestable rent if it is someone else. Both Tullock's original rent-seeking model and the public goods rent-seeking model by Katz et al. turn out to be special cases of this more general model.     

On the incentives to establish and play political rent-seeking games

Legislators will enact programs that encourage rent-seeking only if they can thereby increase their chances of winning election, or of receiving contributions themselves. The paper shows rent-seeking to be electorally robust — both voters and contributors will often avoid a candidate who proposes to eliminate rent-seeking. Important exceptions arise, however, if contributions are more likely to help challengers than incumbents, and if legislators prefer that some firm rather than another receive governmental contracts.I thank an anonymous referee, members of the Public Choice Study Group at UC Irvine, and Stergios Skaperdas for their comments.     

The optimal subsidization of Baptists by bootleggers

Rent-seeking bootleggers have an incentive to subsidize the lobbying activities of the public-interest minded Baptists. We demonstrate that unless a certain set of conditions hold, the optimal subsidy will be positive and will provide a moral smoke screen for rent-seeking activities. Consequently, it will be extremely difficult to identify the actual level of rent-seeking from the public interest activities. Therefore, current empirical estimates may well underestimate the actual level of rent-seeking in the regulatory arena.I am indebted to Garey Durden for several enlightening discussions on rent-seeking and regulation and helpful comments on an earlier version of this paper.     

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.     

An examination of the structure of governance in California school districts before and after Proposition 13

This paper explores the structure of governance in California school districts. Two alternative models are considered, the decisive voter (benevolent dictator) model and a model that allows for rent-seeking behavior on the part of district decision makers. A formal test between these two models is proposed and implemented. The decisive voter model is found wanting as an explanation of school district decision making both before and after the passage of Proposition 13. There is, however, some evidence that the constraints imposed on some districts by Proposition 13 have forced decision makers to act in a manner more consistent with the preferences of their constituents.     

Stackelberg rent-seeking

In this paper I present a formal analysis of rent-seeking games in which the players do not move simultaneously. I consider rent-seeking situations where the players are risk neutral and may value the prize differently. The subgame perfect equilibrium outcome in this Stackelberg game provides several surprising and interesting results. I extend the problem to deal with cases of incomplete information concerning the value a player has for the politically contestable rent.     

What Sort of Science is ‘Economics’?

This essay is a general defense of Etzioni’s argument in The Moral Dimension. I explore three areas that others have questioned and show them (from my neo-Etzioni position) to be false. The result is a resounding vote of confidence for socioeconomics over neo-classical economics.     

Risk aversion in two-period rent-seeking games

This work analyzes a two-period rent-seeking game, with the aim of studying the effect of risk aversion on the optimal choices made by the rent-seekers. We first prove that the equilibrium in two-period rent-seeking games always is unique. The analysis also shows that more risk aversion reduces the investment in the rent-seeking game in a two-period framework without introducing the additional condition of prudence, required in one-period models. Similarly, the introduction of a risky rent, instead of a given rent, implies, in the two-period framework, a reduction in investment under the condition that the rent-seekers are risk averse. Moreover, with risk aversion, larger first-period wealth increases investment in the rent-seeking game and larger second-period wealth reduces it. When both first-period and second-period wealth increase, investment in the rent-seeking game declines if the rent-seeker is risk averse and imprudent. Lastly, when a risky level of second-period wealth is introduced, the rent-seeker increases (reduces) investment in the rent-seeking game if he is risk averse and prudent (imprudent).

     

Delegation with multiple instruments in a rent-seeking contest

We consider delegation in a rent-seeking contest with two players, where delegates have more instruments at their disposal than the main players. We endogenize both the decision to hire a delegate and the contingent fee offered to the delegates. We characterize the situations when either no, one or two players hire a delegate in equilibrium. We show that the decision to hire a delegate depends in a non-monotonic way on the size of the contested prize.     

Avoiding the ‘joint-decision trap’: Lessons from intergovernmental relations in Scandinavia

Abstract. This essay provides a critical assessment of an important contribution to the debate on institutional efficiency and inefficiency in European policy–making: the thesis on the 'joint–decision trap'. This trap was identified by Fritz W. Scharpf, first in German federalism and later in policy–making in the European Union. The essay argues that joint–decision traps may be a much more prevalent phenomenon than envisaged by Scharpf. However, the essay demonstrates that joint–decision traps are not inherent to joint–decision systems. The basic argument of the essay is that the effects of joint–decision systems on public policy is contingent upon the central government's ability to threaten intergovernmental actors with exit. If this is possible, joint–decision systems turn into an asset. This argument is made on the basis of an analysis of intergovernmental relations in Sweden, Norway, and Denmark and a comparison of the Scandinavian systems with those of France and Germany.