Rent-Seeking with Politically Contestable Rights to Tariff-Rate Import Quotas

Abstract

This paper analyzes rent-seeking for agricultural import quotas and the associated waste of resources when politically contestable licenses are allocated to either or both importers and exporters. In a two-stage simultaneous contest where firms seek rent for licenses and then bargain over the import/export price, it is shown that (1) rents are not dissipated completely because of uncertainty in allocation of "rights," (2) the dissipation ratio increases if the country with a more competitive contest increases the probability of establishing licenses, (3) rent-seeking may cause the market structure to change, (4) less rent is dissipated in the case of pre-existing market power, and (5) allocation of multiple licenses decreases rent-seeking outlays.