preemptive rent seeking and the social cost of monopoly power abstract monopoly power evokes rent seeking aimed at supplanting an incumbent monopolist as well as preemptive rent seeking by incumbents concerned with deterring entry of potential competitors using an illustrative example where preemptive rent seeking takes the form of excess capacity this note makes the point that the relation between the value of resources expended in the two types of rent seeking activity determines whether exposure of an incumbent monopolist to the discipline of potential competition reduces the social cost of monopoly power

rent seeking and entry abstract it is the purpose of this paper to develop a market equilibrium model of rent seeking with entry the model determines the optimal amount of rent seeking activities by individuals the equilibrium number of rent seekers and hence also the total amount of rent seeking in the industry

monopoly deregulation in the presence of tullock activities we give the condition for a welfare improving monopoly deregulation when the decision making process cannot be insulated from tullock activities and players are risk neutral

competition between insurers with superior information abstract we analyze markets where insurers are better informed about risk than consumers we show that even competitive markets may result in insufficient information revelation and inefficient insurance coverage this explains why certain risky consumers remain uninsured and why certain market segments are persistently profitable we also show robustness to competition in menus or mechanisms our analysis of the contrary of adverse selection competition between principals with common value and exclusivity is suitable for other markets lawyers doctors mechanics etc

on perfect rent dissipation if economists are united on anything it is the proposition that monopoly prices reduce economic welfare by preventing the realization of the maximum gains from trade in any market the extent of such distortions to efficiency are often called harberger costs after arnold harberger s 1954 provocative attempt to measure the extent of these losses in the u s economy more recent analysis has revealed that when monopoly power is achieved via regulation at least part of the monopoly rents so gained will not be simple transfers from consumers to producers but will be dissipated by producers rent seeking activity since such activity employs real resources there are additional costs to monopolization beyond the harberger costs as emphasized by gordon tullock 1967 and richard posner 1975 indeed posner and others have argued that if competition for the monopoly rents is perfect all of the expected rents from regulation will be converted to welfare losses while franklin fisher s 1985 comment has qualified this conclusion somewhat the upshot of the debate is that the rent seeking or tullock costs may greatly exceed the harberger costs 1 another recent strand of the analysis concerns the time pattern over which monopoly returns are dissipated by competition to gain and hold the monopoly right robert mccormick et al 1984 emphasize that to the extent such expenditures are sunk they are forever lost and not recoverable by deregulation while conceding the point martin cherkes et al 1986 argue that most rentseeking expenditures are recurring not sunk and therefore large gains from deregulation remain the purpose of this essay is to point out that recurring or sunk even the largest specification of the harberger and tullock costs of regulatory monopolization may fall far short of the actual welfare costs this is because the analysis concentrates on the rent seeking tullock costs and largely ignores the parallel rent defending2 tullock costs a proper assessment of such rent defending tullock costs might more than double the maximum welfare costs of regulation suggested by posner

information control in the principal agent problem this paper compares the principal s payoff in agency models under different assumptions about the agent s access to information the agent may make decisions before is uninformed or after is informed learning the state of nature when there are two possible outcomes the principal typically prefers informed to uninformed agents whether the agent receives the information before or after contracting this result is false when there are more than two outcomes conditions under which a principal prefers one agent to another when the agents differ only in their disutility of effort are also given copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

using cost observation to regulate firms the paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier 1 has superior information about the cost of the project and 2 invests in cost reduction the main result states that under risk neutrality the supplier announces an expected cost and is given an incentive contract linear in cost overruns this optimal contract moves toward a fixed price contract as the announced cost decreases an investment choice is then introduced and the use of a rate of return regulation is studied

consumer resistance and monopoly behavior under franchise contestability the probability of a deregulation under anti monopoly consumer lobby is generated at the cournot nash equilibrium of a lobbying game which depends on the monopoly rent and the deadweight loss this probability is increasing and convex in monopoly price when the deregulation probability constraint is binding the monopolist s price rises with the number of consumers the competitive price and the given ceiling probability the social cost of a monopoly under franchise contestability differs from the posner measure

seeking rents by setting rents the political economy of rent seeking in recent years there has been a large number of papers on the subject of rent seeking most such works on rent seeking have taken the rent as exogenously determined by regulators regulators howeve r may also be expected and indeed have been shown to be rent seeke rs and hence the determination of the rent itself should be endogeniz ed to reflect the fact that the rent setters are themselves rent se ekers in this paper the authors do this by presenting an analysis o f the interaction of regulators firms and consumers within a rent s eeking framework where all three groups are assumed to be self motiva ted the analysis is carried out under alternative assumptions regard ing the nature of the market and the reaction functions of the partic ipants policy implications are drawn where appropriate copyright 1987 by royal economic society

long run equilibrium and total expenditures in rent seeking a comment although corcoran is mathematically correct i believe his comment is not very helpful in order to discuss the matter in some detail the reader should consult table 7 1 from my original efficient rent seeking reproduced on page 92 1 this shows the equilibrium investment of each individual different numbers of individuals playing the game n and differing values of r table 7 2 also reproduced on page 93 shows the total investment

directly unproductive profit seeking dup activities this paper propses directly unproductive profit seeking dup activities as a general concept that embraces a wide range of recently analyzed economic activities including the subset of rent seeking activities considered by krueger it then proceeds to provide a synthesis and generalization of the welfare theoretic analysis of such activities by developing a fourfold categorization of cases depending on the levels of distortions before and after the dup activity thus a unification and overview of the subject are achieved

efficient rents 1 rent seeking behavior in the long run we have analyzed long run behavior in rent seeking under several conditions and behavioral hypotheses the question of interest is whether or not the long run expenditures will exactly equal the value of the rents our results depend on the type of competitive response which is assumed to exist in the long run and on the r value governing the probability of winning

optimal procurement contracts with pre project planning the paper studies procurement contracts with pre project investigations in the presence of adverse selection and moral hazard to model the procurer s problem we extend a standard sequential screening model to endogenous information acquisition with moral hazard the optimal contract displays system atic distortions in information acquisition due to a rent effect adverse selection induces too much infor mation acquisition to prevent cost overruns and too little information acquisition to prevent false project cancellations moral hazard mitigates the distortions related to cost overruns yet exacerbates those related to false negatives the optimal mechanism is a menu of option contracts that achieves the dual goal of providing incentives for information acquisition and truthful information revelation

pessimistic information gathering an agent gathers information on productivity shocks and accordingly produces on behalf of a principal information gathering is imperfect and whether it succeeds or not depends on the agent s effort contracting frictions come from the fact that the agent is pessimistic on the issue of information gathering and there are both moral hazard in information gathering private information on productivity shocks and moral hazard on operating effort an optimal menu of linear contracts mixes high powered productivity dependent screening options following good news with a fixed low powered option otherwise

risk averse rent seekers and the social cost of monopoly power there is now quite general recognition that the social cost of monopoly power encompasses the resources expended by individuals seeking to become the beneficiaries of monopoly rents however since the activity of rent seeking is generally not observable direct estimates of resources expended in quests to acquire monopoly power are usually impossible to come by 1 as a consequence the indirect approach of taking the observed value of monopoly rents as indicative of the unobserved value of the resources expended in rent seeking is quite generally adopted in approaches to evaluation of the social cost of such activity

the social cost of rent seeking under countervailing opposition to distortionary transfers abstract this paper shows that the entry of opposition to a transfer which raises overall tullock outlays is welfare enhancing when the number of rent seekers is large the spending of the opposition exceeds the fall in the combined spending of rent seekers opposition when there is a single rent seeker or an entrenched beneficiary is never welfare enhancing the larger the number of aspirants to a transfer the smaller is the number of consumers required to render the consumer lobby ineffective when free riding is allowed

long run equilibrium and total expenditures in rent seeking the lure of excess profits or rents associated with monopoly power gives rise to expenditures to obtain these rents competitive rent seeking behavior is recognized as a factor which must be included among the wastes associated with monopoly power tullock 1967 posner 1975 1 the expenditures are aimed at transferring wealth rather than its creation and the use of resources to obtain this transfer is a loss to society how important rent seeking is as a part of the total monopolistic waste hinges on the size of the total expenditures induced by a given level of excess profits