Seeking rents in the shadow of Coase

Giuseppe Dari-Mattiacci, Sander Onderstal, Francesco Parisi

Research output: Contribution to journalArticlepeer-review

5 Scopus citations

Abstract

In this paper, we study a two-stage rent-seeking game. In the first stage, contestants compete à-la-Tullock; in the second stage, the winner can resell the rent à-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.

Original languageEnglish (US)
Pages (from-to)171-196
Number of pages26
JournalPublic Choice
Volume139
Issue number1-2
DOIs
StatePublished - Apr 2009

Bibliographical note

Funding Information:
G. Dari-Mattiacci gratefully acknowledges the financial support from the NWO grant 016.075.332.

Funding Information:
S. Onderstal gratefully acknowledges the financial support from the NWO grant 453.03.606.

Keywords

  • Asymmetric rent valuations
  • Rent-dissipation
  • Rent-misallocation
  • Rent-seeking

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