Seeking Rents in the Shadow of Coase
University of Amsterdam - Amsterdam Center for Law & Economics (ACLE); Tinbergen Institute
University of Amsterdam; Tinbergen Institute
University of Minnesota - Law School; University of Bologna
November 20, 2008
Public Choice, Forthcoming
Minnesota Legal Studies Research Paper No. 08-16
Amsterdam Center for Law & Economics Working Paper No. 2006-09
In this paper, we study a two-stage rent-seeking game. In the first stage, contestants compete a-la-Tullock; in the second stage, the winner can resell the rent a-la-Coase. We consider a complete information Tullock game in which the contestants have different valuations for the rent. The analysis focuses on the ex ante effects of a secondary market on efforts, payoffs, rent-dissipation and rent-misallocation. We show that the secondary market, while correcting possible misallocations, may exacerbate rent dissipation. In some situations, the increase in rent dissipation more than offsets the allocative advantage, so that a secondary market might reduce welfare. We further show how the effect of ex post tradeability on welfare depends on the parties' bargaining power and valuations of the rent, also considering the case of endogenous bargaining power.
Number of Pages in PDF File: 37
Keywords: Rent-seeking, asymmetric rent valuations, rent-dissipation, rent-misallocation
JEL Classification: C72, D72
Date posted: July 13, 2006 ; Last revised: March 30, 2011
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