Do Too Many Cooks Always Spoil the Stew? An Experimental Analysis of Rent-Seeking and the Role of a Strategic Buyer

Douglas Davis and Robert Reilly

Public Choice, 1998, vol. 95, issue 1-2, 89-115

Abstract: Laboratory methods are used to evaluate the effects of institutional arrangements and rent-defending activity on rent-seeking auction outcomes. In part, Nash equilibrium predictions are a useful behavioral guide: as predicted, more rents are dissipated in perfectly-discriminating auctions, where the high-bidder wins, than in lotteries, where relative bids determine the chance of winning. Also as predicted, the introduction of a rent-defending buyer reduces social costs. Nevertheless, the social costs of rent-seeking consistently exceed predicted levels. Moreover, individual bidding, especially by buyers, deviates markedly from Nash predictions. Copyright 1998 by Kluwer Academic Publishers

Date: 1998
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