Strategic Entry, Rent-Seeking and Transfers

Toke S Aidt ()

No 1997-21, Economics Working Papers from School of Economics and Management, University of Aarhus

Abstract: In this paper, we consider strategic entry decisions in a two-player political transfer contest, i.e. the prize is a transfer from one lobby group to another. The size of the transfer depends on the lobbying effort of the political active lobby groups. We show that the entry decision involves a trade-off between an influence loss and a strategic gain. The influence loss is related to the value of the foregone option to influence policymaking. The strategic gain is related to the strategic behaviour of the competitor. The existence of symmetric equilibria in which both lobby groups enter the contest and asymmetric equilibria in which only one lobby group enters is proved. In the latter type of equilibrium, rent-seeking expenditures are substantially reduced, and the strategic behaviour of the active lobby group acts as a barrier to entry by rewarding the competitor for staying out of the contest.

Keywords: Rent-seeking; entry; lobby groups; transfer contests (search for similar items in EconPapers)
JEL-codes: D23 D72 D78 (search for similar items in EconPapers)
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