Risk-Averse Rent Seeking with Shared Rents

Ngo Long and Neil J Vousden

Economic Journal, 1987, vol. 97, issue 388, 971-85

Abstract: This paper presents a Nash equilibrium model of rent-seeking behavior in which risk-averse players expend resources to obtain a share of a rent, as for example in contests for import quota licences. Results are obtained relating the equilibrium level of lobbying effort by each player to the value of the rent. In particular, reduced individual lobbying effort is associated with higher rents contested if players are sufficiently risk averse. The question of whether the value of rents is a good measure of the resource cost of rent seeking is also considered. A simple approximation involving risk and risk-aversion parameters is derived for the proportion of rents dissipated in long-run equilibrium. Risk and risk aversion are seen to reduce the rent-dissipation ratio below unity. Copyright 1987 by Royal Economic Society.

Date: 1987
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