The original work on rent-seeking conjectured that rent-seeking expenditures would completely dissipate the rent sought (Posner, 1975; Becker, 1968). Presently it appears to be accepted as a fundamental tenet in spite of the lack of knowledge of how such a result would come about (Demsetz, 1976; Foster, 1981). Tullock (1980) using a game-theoretic approach with a Cournot-Nash (C-N) response function showed that total expenditures can be greater than, equal to, or less than the rent payoff depending on the number of players and the marginal cost of influencing the probability of winning. Corcoran (1983) extended Tullock’s model to a long-run setting, i.e., free entry, and found that under these conditions rents will be dissipated. Tullock (1983) agreed in part, but still maintained that where marginal costs were rapidly falling or rising throughout, Corcoran’s long-run solution does not pertain.
KeywordsTransaction Cost Reservation Price Expected Profit Expected Loss Aggregate Expenditure
Unable to display preview. Download preview PDF.
- 2.Corcoran used the discounted value of rents given by Xe -pt for his long-run analysis. His long-run solution assumed entry as long as the rate of return exceeded the discount rate, p. In the simpler case where the payoff is received immediately upon placing the bet, entry would occur so long as profits are positive. The main results of the analysis are unchanged with the simplifying assumption.Google Scholar
- 5.There is as illustrated earlier, an incentive for those already in the game to submit another bet and increase expected earnings. In either case the total number of bets rises so long as expected profits are still positive.Google Scholar
- 6.One could make the argument that players would always be constrained in the betting by the smallest unit of currency. In the U.S., one cent becomes the constraint and since one is divisible into every payoff, all rents would be dissipated.Google Scholar
- 7.One exception is the sealed bid auctioning of public lands for mineral leases. In these auctions, the government has a reservation price on each tract although the reservation price is not known prior to the submission of bids. If the maximium bid falls short of the reservation price, the tract is retained by the government for auctioning at a later date. In these auctions only the winning firm’s bid is retained and thus the effect is somewhat different in that it is to insure that all rents cannot be captured by the bidder.Google Scholar
- 9.This can also be determined by multiplying equation (30) by n.Google Scholar
- 10.For example, the optimal bet by an entrant (derived from 1) and 2) in note 8) is (r-1)X/r. When entry occurs the expected value of an incumbent betting for maximum expected profits while preventing hit and run entry, is negative.Google Scholar