Returns to Effort in Rent-Seeking Games
University of Amsterdam - Amsterdam Center for Law & Economics (ACLE); Tinbergen Institute
University of Minnesota - Law School; University of Bologna
July 19, 2012
Public Choice 2014
Minnesota Legal Studies Research Paper No. 12-37
Amsterdam Law School Research Paper No. 2012-83
Amsterdam Center for Law & Economics Working Paper No. 2012-06
In the traditional formulation of rent-seeking games, increasing returns to effort are characterized by an exponent r > 1. However,when the value of rent is normalized to 1, the players’ effort levels A and B will typically be less than 1. Thus, when A < 1 and r > 1, the value of Ar decreases as r increases, contradicting the interpretation of r > 1 as representing increasing returns to effort. This apparent defect in the mathematization of the problem seems to suggest that a different interpretation of r is required where A < 1, upsetting the uniformity and elegance of the model. In this short note, we demonstrate that the perceived problem is illusory, and that the usual interpretation of r is satisfactory for all values of A.
Keywords: rent-seeking games, returns to effort, normalization of values
JEL Classification: D72
Date posted: August 29, 2012 ; Last revised: March 23, 2014
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