Rent dissipation when rent seekers are budget constrained |
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Authors: | Che Yeon-Koo Gale Ian |
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Affiliation: | 1. Department of Economics, University of Wisconsin, Madison, WI, 53706 2. Department of Economics, Georgetown University, Washington, DC, 20057 and 3. Antitrust Division, U.S. Department of Justice, Washington, DC, 20530, USA
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Abstract: | In the original Tullock (1975, 1980) game, an individual bidder's probability of winning with a bid b is proportional to bR, where the exponent reflects economies of scale in rent seeking. Different interpretations can be given to these probabilities. First, one may view R as a reflection of the political culture. Alternatively, one may view R as a choice variable for a politician. Intuition suggests that a society with a high tolerance for the selling of political favors and politicians who are receptive to rent seeking would both induce greater rent-seeking expenditures than other societies, all else equal. This paper shows that a lower value of R can actually lead to more rent dissipation than a higher value. This paper also reinforces two points concerning rent seeking. First, the analysis confirms the robustness of under-dissipation of rents, even in the face of entry. Second, it points out the importance of distinguishing between rent-seeking expenditures and rent dissipation. When bidders must borrow, for example, total expenditure may understate rent dissipation. |
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