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.
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Acknowledgements The authors would like to thank Guido Calabresi, Emanuela Carbonara, Gerrit De Geest, Ben Depoorter, Christine Kymn, Bruce Johnsen, Henrik Lando, Alan Lockard, Jacob Nussim, Sander Onderstal, Eric Posner, Roald Ramer, Gordon Tullock, Georg von Wangenheim, Wolfang Weigel, Mark We-instein, the participants in the 2004 annual conference of the European Association of Law and Economics, the 2006 annual meeting of the American Law and Economics Association, and seminars at George Mason University School of Law and Universiteit van Amsterdam, and two anonymous referees for helpful comments. Earlier versions of this article were circulated as ‘Rents, Dissipation and Lost Treasures with N Parties’. G. Dari-Mattiacci gratefully acknowledges the financial support provided by Université Nancy 2.
- Rent dissipation
- Tullock's paradox