Rent Seeking and Allocative Efficiency

11 Pages Posted: 13 Dec 2002

See all articles by Donald D. Lien

Donald D. Lien

University of Texas at San Antonio - College of Business - Department of Economics

Abstract

This paper considers a rent-seeking game (specifically, a winner-takes-all contest) with incomplete information. By allowing for sequential moves, a Bayesian-Stackelberg equilibrium can be constructed. It can be shown that, at the Bayesian-Stackelberg equilibrium, it is always possible that the allocative efficiency argument fails. That is, there are cases in which the Stackelberg follower is more efficient but loses the contest. Using a specific class of distributions, it is also shown that sometimes the corrupt official will choose the Bayesian-Stackelberg equilibrium over the Bayesian-Nash equilibrium in order to maximise the expected bribe revenue. That is, when designing the rules of the rent-seeking game, the dynamic nature of competition will be taken into account.

Suggested Citation

Lien, Donald, Rent Seeking and Allocative Efficiency. Pacific Economic Review, Vol. 7, No. 1, pp. 122-133, 2002. Available at SSRN: https://ssrn.com/abstract=309377

Donald Lien (Contact Author)

University of Texas at San Antonio - College of Business - Department of Economics ( email )

6900 North Loop 1604 West
San Antonio, TX 78249
United States
210-458-4313 (Phone)
210-458-4308 (Fax)

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