Crowding-out in productive and redistributive rent seeking

Giuseppe Dari-Mattiacci, Lovat Bruno, Eric Langlais and Francesco Parisi

MPRA Paper from University Library of Munich, Germany

Abstract: This paper presents a general rent-seeking model in which participants decide on entry before choosing their levels of efforts. The conventional wisdom in the rent-seeking literature suggests that the rent dissipation increases with the number of potential participants and with their productivity of effort. In this paper, we show that this result of the rent-seeking literature is far from general and applies only when participants are relatively weak and enter the game with certainty. In the presence of strong competitors, the expected total dissipation actually decreases, since participation in the game is less frequent. We further consider the impact of competitors' exit option, distinguishing between \textquotedblright redistributive rent-seeking\textquotedblright\ and \textquotedblright productive rent-seeking\textquotedblright\ situations. In redistributive rent-seeking, no social loss results from the fact that all competitors exit the race. In productive rent-seeking, instead, lack of participation creates a social loss (the \textquotedblright lost treasure\textquotedblright\ effect), since valuable rents are left unexploited. We show that the lost-treasure effect perfectly counterbalances the reduction in rent dissipation due to competitors' exit. Hence, unlike redistributive rent-seeking, in productive rent-seeking the total social loss remains equal to the entire rent even when parties grow stronger or the number of players increases.

Keywords: Rent-seeking; rent dissipation; Tullock's paradox (search for similar items in EconPapers)
JEL-codes: C72 D72 K00 (search for similar items in EconPapers)
Date: 2004-10-20, Revised 2006-11-14
New Economics Papers: this item is included in nep-cdm, nep-law and nep-pol
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Related works:
Journal Article: Crowding-out in productive and redistributive rent-seeking (2007)
Working Paper: Crowding-out in Productive and Redistributive Rent-Seeking (2007)
Working Paper: Crowding-out in Productive and Redistributive Rent-Seeking (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:1151

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