Bargaining with Rent Seekers

Amihai Glazer

Journal of Public Economic Theory, 2008, vol. 10, issue 5, pages 859-871

Abstract: Consider a rent-seeking game, which has government bargain with firms over dividing the rents. In period 1, each firm can invest to increase the probability that the rent will appear. In period 2, the parties bargain. In equilibrium, though firms will invest more than the socially optimal level, rent-seeking expenditures may be low. Firms that collude to restrict investment maximize joint profits by investing at a positive, non-infinitesimal level, and restrict investment even if the cost of rent-seeking effort is zero. Copyright © 2008 Wiley Periodicals, Inc..

Date: 2008

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