Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 1997-05-15
Number: 97-045/2
Author-Name: Michael R. Baye
Author-Workplace-Name: The Pennsylvania State University
Author-Name: Dan Kovenock
Author-Workplace-Name: Purdue University
Author-Name: Casper G. de Vries
Author-Email: cdevries@few.eur.nl
Author-Workplace-Name: Erasmus University Rotterdam
Title: The Incidence of Overdissipation in Rent-Seeking Contests
Abstract: This paper reconsiders Tullock's analysis of rent seeking andwasteful overdissipation. The purpose of this paper is to point outthat even though his original analysis of overdissipation istechnically flawed, the definition of overdissipation can bemodified to explain instances in which rational rent-seekersspend more to win a prize than the prize is worth. We showed beforethat equilibrium mixed strategies in the Tullock game do notpermit overdissipation in expectation: the expected total amountspent competing for rents cannot exceed the value of the prize.However, since the equilibrium involves mixed-strategies forparticular realizations of the mixed strategies the totalamount spent competing for rents can exceed the value of theprize! In fact, we show that the cross-sectional incidence ofoverdissipation may be quite high. For a symmetric perfectlydiscriminating contest (R = &inf;), the probability of overdissipationin a symmetric equilibrium ranges from exactly one-half inthe two player case to approximately .44 as the number ofplayers approaches infinity.
File-Url: https://papers.tinbergen.nl/97045.pdf
File-Format: application/pdf
File-Size: 184019 bytes
Handle: RePEc:tin:wpaper:19970045