Risk Aversion and the Full-Costs of Rent-Seeking

Richard J Allard

Bulletin of Economic Research, 1999, vol. 51, issue 2, 95-109

Abstract: Risk aversion is frequently postulated as one of the factors that lead to under-dissipation of rents. However, the formal analyses which have supported this contention and suggested that the effects can be large have focused solely on the expenditures of contestants, ignoring the associated costs of risk. The paper argues that this omission is wrong in principle, and that when corrected the presence of risk aversion in fact leads to substantial increases in the extent of rent dissipation, although an exception is when there is a very strong combination of risk aversion and asymmetry. Copyright 1999 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Date: 1999
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