Privately informed seekers of an uncertain rent |
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Authors: | Ronald M. Harstad |
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Affiliation: | 1. Faculty of Management and RUTCOR, Rutgers University, 07102, Newark, NJ
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Abstract: | Two departures from antecedent rent-seeking models are invoked: a rent of unknown size is sought, and rent seekers obtain private imperfect estimates of this size. A symmetric equilibrium for a fixed number of rent seekers is characterized, and shown to underdissipate the rent. Then a model of the decision to obtain private information and participate in the rent-seeking contest is built. The symmetric equilibrium participation probability equates expected profit to participation costs. A simple formula for underdissipation results: dissipation is incomplete precisely by the expected aggregate participation costs. If an award mechanism can attain a lower level of dissipation for a fixed number of seekers, then it will raise the endogenous probability of participation, and as a result will dissipate less rent in the equilibrium with an endogenous number of seekers. |
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