Crowding-Out in Productive and Redistributive Rent-Seeking

31 Pages Posted: 21 Oct 2004 Last revised: 7 May 2014

See all articles by Giuseppe Dari‐Mattiacci

Giuseppe Dari‐Mattiacci

Amsterdam Law School; Amsterdam Business School; Tinbergen Institute

Eric Langlais

EconomiX, CNRS & University of Paris Ouest

Bruno Lovat

University of Lorraine - Universite Nancy 2

Francesco Parisi

University of Minnesota - Law School; University of Bologna

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 "redistributive rent-seeking" and "productive rent-seeking" 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 "lost treasure" 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

JEL Classification: C72, D72, K00

Suggested Citation

Dari-Mattiacci, Giuseppe and Langlais, Eric and Lovat, Bruno and Parisi, Francesco, Crowding-Out in Productive and Redistributive Rent-Seeking. George Mason Law & Economics Research Paper No. 04-47; Public Choice, Forthcoming. Available at SSRN: https://ssrn.com/abstract=607922 or http://dx.doi.org/10.2139/ssrn.607922

Giuseppe Dari-Mattiacci (Contact Author)

Amsterdam Law School ( email )

Nieuwe Achtergract 166
Amsterdam, 1018 WV
Netherlands

HOME PAGE: http://uva.nl/profile/g.darimattiacci

Amsterdam Business School ( email )

Plantage Muidergracht 12
Amsterdam, 1018TV
Netherlands

HOME PAGE: http://uva.nl/profile/g.darimattiacci

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

HOME PAGE: http://uva.nl/profile/g.darimattiacci

Eric Langlais

EconomiX, CNRS & University of Paris Ouest ( email )

200 Avenue de la République
Nanterre, 92200
France

HOME PAGE: http://economix.u-paris10.fr/fr/membres/?id=889

Bruno Lovat

University of Lorraine - Universite Nancy 2 ( email )

Nancy
France

Francesco Parisi

University of Minnesota - Law School ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States

University of Bologna ( email )

Piazza Scaravilli 1
40126 Bologna, fc 47100
Italy

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