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Strategic Groups and Rent Dissipation

Kyung Hwan Baik and Sanghack Lee

Economic Inquiry, 2001, vol. 39, issue 4, 672-84

Abstract: We consider a rent-seeking contest in which players can form strategic groups before expending their outlays. We examine the profitability of endogenous group formation and the effect of such group formation on rent dissipation. We show the following: When just one strategic group is formed in equilibrium, group formation is beneficial both to the group members and to the nonmembers, and rent dissipation is smaller than with usual individual rent seeking. However, when more than two strategic groups are formed in equilibrium, group formation is never profitable to any players, and rent dissipation is greater than with individual rent seeking. Copyright 2001 by Oxford University Press.

Date: 2001
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Handle: RePEc:oup:ecinqu:v:39:y:2001:i:4:p:672-84