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Seeking Rents in the Shadow of Coase

37 Pages Posted: 13 Jul 2006 Last revised: 30 Mar 2011

Giuseppe Dari‐Mattiacci

Amsterdam Law School; Amsterdam Business School; Tinbergen Institute

Sander Onderstal

University of Amsterdam; Tinbergen Institute

Francesco Parisi

University of Minnesota - Law School; University of Bologna

Date Written: November 20, 2008

Abstract

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.

Keywords: Rent-seeking, asymmetric rent valuations, rent-dissipation, rent-misallocation

JEL Classification: C72, D72

Suggested Citation

Dari‐Mattiacci, Giuseppe and Onderstal, Sander and Parisi, Francesco, Seeking Rents in the Shadow of Coase (November 20, 2008). Public Choice, Forthcoming; Minnesota Legal Studies Research Paper No. 08-16; Amsterdam Center for Law & Economics Working Paper No. 2006-09. Available at SSRN: https://ssrn.com/abstract=913980

Amsterdam Business School ( email )

Roetersstraat 18
Amsterdam, 1018WB
Netherlands

Tinbergen Institute

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Sander Onderstal

University of Amsterdam ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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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