strategic restraint in contests abstract economic policy is modelled as the outcome of a political game between two interest groups the possible ex post realized outcomes in the game correspond to the proposed policies in the literature policy proposals are exogenous we extend such games by allowing the endogenous determination of the proposed policies in a first stage the groups decide which policy to lobby for and then in a second stage engage in a contest over the proposed policies our main result is that competition over endogenously determined policies induces strategic restraint that reduces polarization and in turn wasteful lobbying activities

rent seeking and the provision of public goods in this short paper i adopt the public choice school paradigm of modeling a government in order to compare its performance with that of the market in the standard model of the provision of public goods private provision is represented by the cournot nash equilibrium in individual contributions public provision incorporates rent seeking whereby some of the aspects of the allocation are determined indirectly by influence activities of the interested parties thus both allocation procedures yield inefficiency and the question is which procedure results in a greater amount of inefficiency private provision with its free riding incentives or public provision with its rent seeking incentives the results indicate that public provision may well be preferred to private provision of public goods thus superiority of private provision is not guaranteed even in the case of a non benevolent government copyright 1993 by royal economic society

efficiency wages and local wage bargaining in the literature on wage drift it is often argued that strikes or work to rule practices are used to force employers to pay a wage rate that exceeds the contract wage here we introduce the efficiency wage argument as a foundation for bargaining about wage drift contrary to the view in most bargaining models where firms and unions struggle to divide a fixed pie given employment we take the relation between wages and revenues explicitly into account the implications for wages and employment appear to differ not only with respect to the order of magnitude but also in a qualitative sense

a multi winner nested rent seeking contest this paper considers a symmetric imperfectly discriminating rent seeking contest in which there may be several winners we first demonstrate a serious flaw in previous work and then go on to suggest an alternative method for analyzing the contest in contrast to the previous work we show that the value of the rent is fully dissipated in equilibrium as the number of players becomes large

olson s logic of collective action at fifty in the 50 years since its publication mancur olson s logic of collective action has had an enormous impact on the academic literature in both economics and political science in this review essay i discuss olson s work in light of the ensuing research particularly developments in the theoretical literature much of the discussion focuses on the group size paradox as applied to politics i e the extent to which the group size paradox can explain why the interests of some groups are better represented in the political process than others i also discuss selective incentives with an emphasis on the byproduct mechanism under which a firm sells a private good and uses the resulting profits to provide a public good

risk sharing and incentives in norwegian petroleum extraction abstract distinguishing between idiosyncratic and systematic risk and taking into account that the government is only able to monitor the companies efforts to reduce costs and increase extraction in an imperfect way moral hazard criteria for optimal risk sharing between the norwegian government and the petroleum companies are examined the norwegian practice is compared with the theoretical recommendations and it is suggested that deviations can be explained by political constraints

efficiency wages and industry wage differentials a comparison across methods of pay efficiency wage considerations should be less important for piece rate pay than for time wages therefore if industry wage differentials reflect efficiency wage factors then these pay differences should be less sizable and have less explanatory power for piecework than for timework we test this proposition using wage data for male production workers employed in the swedish metalworking industries in 1985 the data are partitioned into two groups of workers in our preferred sub sample of workers who received pay under both piece rates and time wages our results are uniformly consistent with efficiency wage implications for industry wage differentials for the subsample of workers who received pay under either piece rates or time wages industry wage differentials are of equal importance under either pay scheme these latter results however may also be influenced by unaccounted for sorting of workers and employers across methods of pay overall our examination of industry wage differentials across m

dissipation of contestable rents by small numbers of contenders the theory of rent seeking with its origins in the observations of gordon tullock 1967 or to use jagdish bhagwati s 1982 proposed term the theory of directly unproductive profit seeking activities is concerned with the potentially adverse effects on resource allocation of incentives to cap ture and defend artificially contrived rents and transfers the scope for so cial loss proposed by the theory derives from the relation between the value of a contestable prize and the value of the resources attracted into the con test to determine the beneficiary of the prize underlying this social loss is a specification of how rational behavior by optimizing agents links the value of the prize sought to the resources expended it has been traditional to assume competitive behavior in describing the activities of lobbying and influence seeking then if some further condi tions are satisfied l the total value of the resources expended precisely equals the value of the prize sought so dissipation is complete 2 conse quently the social cost associated with contestability of a rent can be in ferred from the value of the rent itself and the detailed and hard to come by information on individual outlays made in the course of the contest be comes unnecessary by basing their analyses on competitive dissipation contributors to the rent seeking literature see the review by robert tollison 1982 have been able to presume that the observed value of a contested rent is an exact measure of the associated social cost of monopoly power or regu lation similarly in the trade theoretic literature where the rights contested are to quota premia or revenues from trade taxes krueger 1974 bhagwati

setting the stakes in environmental contests abstract firms are frequently in conflict with environmental groups over planning and other decisions standard contest models assume that stakes are exogenously defined which is inappropriate in settings such as application for building permission in which one player also acts as proposer assuming that proposers foresee environmental opposition they will adjust their proposals strategically by introducing an additional stage to the lobbying game the full impact of the dispute process can be reckoned the structure of the game the order in which the players move is shown to have a significant impact on social welfare and may warrant intervention among other things there may be social gains to forcing the developer to move last in planning disputes

uncertain preassigned non contestable and contestable rents abstract potential beneficiaries of government commitments often face the problem of guaranteeing that the commitments are carried out for example funds can be allocated via the budget but not disbursed the disbursement may be subject to the ambiguities of non specified timing or non specified appropriate conditions potential beneficiaries then have incentives to undertake activities that affect the timing of disbursement of the prespecified funds this paper studies the ensuing rent seeking game against the uncertain behavior or discredibility of the government we show that the resources expended by potential beneficiaries of government rents can be substantial but they cannot exceed 30 of the preassigned rents the extent of rent dissipation is incomplete and approaches unity for the critical value of government discredibility that still induces the individual to engage in rent seeking contestability of the allocated funds now referred to as contestable rents increases the extent of rent seeking outlays nevertheless delayed uncertain contestable rents cannot be overdissipated

two stage team rent seeking experimental analysis this paper presents a two stage team rent seeking model with a contest prize that is not excludable among winning team members when early effort is a perfect substitute for late effort early actors can free ride on their late moving teammates however when early and late efforts are complements all team members exert positive effort levels asymmetries in early effort reduce effort choices for all late movers the theory is tested with laboratory experimental methods although subjects overinvest relative to the nash equilibrium in all treatments chosen effort levels provide limited support for the model early movers exerted higher effort in the complement treatment and second stage effort choices were broadly consistent with best response functions surprisingly in both single shot and repeated play environments early movers in the substitute treatment did not free ride choosing effort levels similar to those of late movers

competitive blind spots and the cyclicality of investment experimental evidence we report laboratory experiments investigating the cyclicality of profit enhancing investment in a competitive environment in our setting optimal investment is counter cyclical when investment costs fall following market downturns however we do not observe counter cyclical investment instead we see much less strategic behavior than our rational investment model anticipates our participants exhibit what porter 1980 terms a competitive blind spot and heuristic investment models where individuals invest a fixed percentage of their liquidity or a fixed percentage of anticipated market demand better fit our data than does optimal investment we also report a control treatment without cost changes and a treatment with asymmetric investment liquidity both of these extensions support our main result

transfer seeking and avoidance on the full social costs of rent seeking we would like to thank gordon tullock and an anonymous referee of this journal for their helpful comments and suggestions this abstract was borrowed from another version of this item

rent seeking contest when the prize increases with aggregate efforts the objective of this article is to investigate contests in which efforts are productive tullock s standard rent seeking model is extended by making the rent itself increase with the aggregate efforts a positive externality is thereby introduced into the contest because a contender s private effort in quest of the rent generates a benefit for other contenders coupled with a negative externality presented in the standard rent seeking model the net effect on the social efficiency of the contest is a priori ambiguous it is shown that the extended contest generates socially wasteful excessive aggregate efforts

industrial policy in an imperfect world theoretical analyses of industrial policy normally restrict the range of possible outcomes by abstracting from either market or government failures this paper thus studies industrial policy and its effectiveness in a model that includes both market and government imperfections we introduce a public agency responsible for industrial policy into the model of hausmann and rodrik 2003 and assume that this agency has limited information and is partly politically motivated we further extend the model to allow the public agency to communicate with entrepreneurs and the entrepreneurs to engage in rent seeking we find that industrial policies are ineffective if the public agency is poorly informed but that they are not necessarily ineffective if the public agency is highly politically motivated given a highly politically motivated public agency industrial policies are effective if and only if the institutional setting ensures that such policies are modest e g by restricting the public agency s budget moreover our model helps us to understand why the same industrial policies that have failed elsewhere have been relatively successful in south korea and taiwan

collective rent dissipation the theory of rent seeking was initiated by tullock 1967 1980 followed by krueger 1974 and posner 1975 and more recently extended in various directions by allard 1988 appelbaum and katz 1986a b c gradstein and nitzan 1989 hillman and katz 1984 1987 hillman and samet 1987 hillman and riley 1989 katz et al 1990 long and vousden 1987 ursprung 1990 and varian 1989 the purpose of this paper is to extend this theory by introducing the possibility of collective group rent seeking with voluntary individual decisions regarding their extent of participation in the collective rent seeking efforts

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

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

risk averse rent seeking with shared rents this paper presents a nash equilibrium model of rent seeking behavior in which risk averse players expend resources to obtain a share of a rent as for example in contests for import quota licences results are obtained relating the equilibrium level of lobbying effort by each player to the value of the rent in particular reduced individual lobbying effort is associated with higher rents contested if players are sufficiently risk averse the question of whether the value of rents is a good measure of the resource cost of rent seeking is also considered a simple approximation involving risk and risk aversion parameters is derived for the proportion of rents dissipated in long run equilibrium risk and risk aversion are seen to reduce the rent dissipation ratio below unity copyright 1987 by royal economic society

investment cost estimates and investment decisions abstract when evaluating new investment projects oil companies traditionally use the discounted cashflow method this method requires expected cashflows in the numerator and a risk adjusted required rate of return in the denominator in order to calculate net present value the capital expenditure capex of a project is one of the major cashflows used to calculate net present value usually the capex is given by a single cost figure with some indication of its probability distribution in the oil industry and many other industries it is a common practice to report a capex that is the estimated 50 50 median capex instead of the estimated expected expected value capex in this article we demonstrate how the practice of using a 50 50 median capex when the cost distributions are asymmetric causes project valuation errors and therefore may lead to wrong investment decisions with acceptance of projects that have negative net present values

the bias in favor of pro tariff lobbies abstract we show that the probability of success of the pro tariff lobby defined as a decreasing function of the ratio of consumer loss to producer gain rent generated by the tariff rises with the tariff under very general conditions this appears as an exception to becker s view that less distortionary measures tend to be adopted over their more distortionary counterparts we then provide a micro foundation for our probability definition using the imperfectly discriminating lobbying framework

between group contests over group specific public goods with within group fragmentation we model a contest between two groups of equal sized populations over the division of a group specific public good each group is fragmented into subgroups each subgroup allocates effort between production and contestation perfect coordination is assumed within subgroups but subgroups cannot coordinate with one another all subgroups choose effort allocations simultaneously we find that the group that is more internally fragmented receives the smaller share of the public good aggregate rent seeking increases when the dominant subgroups within both communities have larger population shares any unilateral increase in fragmentation within a group reduces conflict and increases the total income of its opponent strikingly the fragmenting community itself may however increase its total income as well even though its share of the public good declines hence a smaller share of public good provisioning cannot be used to infer a negative income effect on the losing community

would you trust lobbies we consider the regulatory problem to approve or to ban a new product technology in the context of scientific controversy about its detrimental environmental and or health effects we formalize the regulator s decision making process as a tullock contest towards a theory of the rent seeking society texas a m university press texas 1980 the contestants being an industrial lobby representing the economic agents who have developed the new product technology and an environmental lobby representing the economic agents who will be harmed by the product or technology assuming that the industrial lobby has private information about the unfavorable environmental and or health effects but can be held liable for damage ex post we derive the equilibrium properties of the contest in particular we derive conditions under which it is socially preferable for the regulator to decide according to the contest s outcome rather than according to an ex ante cost benefit analysis using his prior beliefs we find that the contest outperforms the ex ante cost benefit analysis only if the risk of judgment proofness is not too high

rent seeking incentives in share contests abstract this article investigates share contests in our framework we allow contestants to have more general preferences than have been used in the literature previous approaches have the unfortunate characteristic that contestants marginal rates of substitution between the rent share allocated by the contest and their effort is constant regardless of the size of the rent share this results in a conventional wisdom larger rents command more effort by providing a more general framework we show the reverse may also be true and we derive the conditions under which this is the case our approach then allows us to rationalize within a standard contest framework observations that rents might be more hotly contested when they become scarcer as has evidently been the case with the recent global contraction of public funds available for public policy

the political economy of benefits and costs a neoclassical approach to distributive politics this essay offers a rational political explanation for the notorious inefficiency of pork barrel projects with an optimization model of legislative behavior and legislative institutions the model emphasizes the economically arbitrary from a welfare point of view importance of the geographic incidence of benefits and costs owing to the geographic basis for political representation we explore the implications of a legislator s objective function and derive conditions under which a representative legislature will select an omnibus of projects each of which exceeds the efficient scale

origins of the federal reserve system international incentives and the domestic free rider problem from the civil war to 1914 the united states had one of the worst e nancial systems in the world the dominant institutional feature of the system was the absence of a central bank and its most salient performance characteristics were the recurrence of banking panics and severe seasonal interest rate e uctuations these e nancial problems were economically costly panics were accompanied by sharp declines in the money supply reduced economic activity and increased unemployment and business failures in 1913 congress created the federal reserve system to safeguard the nation from panics and smooth out interest rate seasonals in more general terms the federal reserve was established to provide the national public good of e nancial system stability in this study i explain how american society overcame the collective action problems that normally constrain the production of public goods to inadequate levels in other words the article is about the political effort that produced an infrastructural cornerstone of the modern u s economy in the face of incentives that should have left few people with sufficient motivation to pay for the improvement i bring to bear a joint products selective incentives argument to explain the voluntary collective action behind the federal reserveact 1 the lobbying effort was aboutsolving thepanic problem tobe sure but becausethisexpected benee t approximated a societywide public good it did not on its own motivate collective action instead the united states faced a second problem of e nancial organization before 1914 and it was this problem that created a private inducement to lobby for the federal reserve the structure of the domestic e nancial machinery contributed not only to instability at home but also to the near complete absence of the u s dollar in global e nancial affairs indeed the united states was the only major trading country whose currency did not function as an international currency before 1914 the new this article is a revision of a paper delivered at the 1996annual convention of the southern economic association washington d c 23 25 november i thank michael bordo marc busch william r clark benjamin j cohen barry eichengreen jeffry frieden william keech stephen krasner charles lipson jameslivingston louispauly georgeselgin bethsimmons richardtimberlake danielverdier eugene n white and two anonymous reviewers for very helpful comments 1 see olson 1965 and sandler 1992

union s threats and wage determination this paper considers local wage bargaining as a sequential game and focus es on how different rules of the game affect employment and equilibri um payment to workers and employers work to rule and other go slow t hreats lead to low employment while strike threats lead to high empl oyment an increase in the bargaining power of the union induces high er or unchanged equilibrium employment in the strike threat case whi le employment is reduced in the slow down case finally if all kinds of industrial actions are legal only one is credible which type de pends on the parameters of the model copyright 1988 by royal economic society

sequential teamwork in competitive environments theory and evidence from swimming data abstract many tasks require the input by more than one person very often with members of the team contributing sequentially however team production is plagued by disincentive problems we investigate individual incentives to team production with sequential contributions and competing teams we show that earlier contributors free ride on team members contributing later on we test our predictions on sports data using an athlete s performance in the individual race as a natural control for his relay performance our empirical findings strongly support the theoretical claims

rent seeking for pure public goods in this paper we present a formal analysis of rent seeking for public goods by two or more groups with different numbers of individuals we begin by considering equally wealthy groups under risk neutrality a case which constitutes our basic model several surprising and interesting results emerge from the analysis of this basic case the problem is then extended to deal with a groups with different wealth levels and b risk aversion this last extension brings about a further crop of interesting and useful results

the uniqueness of pure strategy nash equilibrium in rent seeking games with risk averse players this article proves that if each player s measure of absolute risk aversion is nonincreasing in his her wealth then there exists a unique pure strategy nash equilibrium in the general rent seeking game where risk averse players can coexist with risk neutral players attitude toward risk can differ among players and concave production functions for lotteries are not necessarily the same among players

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

asymmetry and corrective public policy in contests the proposal of an inefficient policyusually stimulates a political strugglebetween the affected interest groups theresulting wasteful lobbying activities mayreduce welfare even if the proposed policyis not approved in this paper weshow that sufficient asymmetry in payoffsnot only tends to reduce lobbying effortsin standard rent seeking contests as iswell known but it is in fact a necessarycondition for the implementation of asuccessful effective correctivetax transfer policy that complements theproposal of the inefficient policy such apolicy induces an efficient equilibriumoutcome which is in addition optimal fromthe viewpoint of the players that take partin the public policy game

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

rent seeking with non identical sharing rules the primary object of this paper is to examine the role of differential sharing rules within a collective rent seeking setting on the possible non existence of nash equilibrium focusing on groups that distribute part of the rent equally among their members and the residual according to relative effort we show that in rent seeking societies applying the two polar sharing rules equilibrium never exists in the general case where groups apply different but not necessarily the polar sharing rules we study the relationship between group variability in distributing rents and the problem of non existence of equilibrium in the rent seeking game

the welfare consequences of directly unproductive profit seeking dup lobbying activities price versus quantity distortions abstract this paper is a contribution to the growing literature on the theory of what bhagwati 1982 has christened the theory of dup activities these are activities that use up real resources in making profits i e income without producing directly or indirectly a good they result therefore in the contraction of the availability set defined on goods for one generic subset of such dup activities namely distortion triggered lobbying activities the paper establishes asymmetrical propositions on the possibility of such dup lobbying resulting in a paradoxical improvement of welfare

a theory of competition among pressure groups for political influence this paper presents a theory of competition among pressure groups for political influence political equilibrium depends on the efficiency of each group in producing pressure the effect of additional pressure on their influence the number of persons in different groups and the deadweight cost of taxes and subsidies an increase in deadweight costs discourages pressure by subsidized groups and encourages pressure by taxpayers this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful both are produced by the competition for political favors

local and central wage bargaining the literature on wage bargaining usually considers either central or local wage bargaining an exception is holmlund 1986 throughout most of the unionized part of the private sector in norway wage bargaining takes place on two levels first centrally and then locally in the economic policy debate it has been argued that this system leads to higher wages and lower employment than bargaining on only one level regardless of whether it is central or local see e g skatnland 1983 in this paper i present a model with wage bargaining on two levels and show that in this system the above argument is proved false we focus on an industry with n identical firms which produce one homogeneous product for simplicity the output price and input prices other than wages are considered given on the central level there is a utility maximizing labor union with a quasi concave utility function increasing in the arguments employment l and total wage vv there is a local labor union in each firm we analyze the system during one period say a year wage setting in this period consists of three stages in the first stage the central labor union sets the tariff wage q unilaterally this follows the monopoly model of e g dunlop 1944 and oswald 1985 in the second stage the firms determine the employment l which prevails until the next period in the third and final stage the local union negotiates with the management of the firm about local wage drift the total wage is w q wage drift the assumption that the firms determine employment prior to wage bargaining is used by e g moene 1987 and horn wolinsky 1985 both the central labor union and the firms know how local wage bargaining functions and can therefore perfectly anticipate what the result

carbon market risks and rewards firm perceptions of cdm investment decisions in brazil and india the carbon market experiences of brazil and india represent policy success stories under several criteria a careful evaluation however reveals challenges to market development that should be addressed in order to make the rollout of a post 2012 cdm more effective we conducted firm level interviews covering 82 cdm plants in the sugar and cement sectors in brazil and india focusing on how individual managers understood the potential benefits and risks of undertaking clean development mechanism cdm investments our results indicate that the cdm operates in a far more complex way in practice than that of simply adding a marginal increment to a project s internal rate of return our results indicate the following first although anticipated revenue played a central role in most managers decisions to pursue cdm investments there was no standard practice to account for financial benefits of cdm investments second some managers identified non financial reputational factors as their primary motivation for pursuing cdm projects and third under fluctuating regulatory regimes with real immediate costs and uncertain cdm revenue managers favored projects that often did not require carbon revenue to be viable the post 2012 cdm architecture can benefit from incorporating these insights and in particular reassess goals for strict additionality and mechanisms for achieving it

efficiency wages and local versus central wage bargaining abstract a simple efficiency wage model is extended to allow for the presence of unions the presence of unions aggravates the unemployment caused by efficiency wage considerations provided the labour demand elasticity is not too much larger than one local firm level wage bargaining gives a higher negotiated wage than central wage bargaining implying higher unemployment under local wage bargaining than under central wage bargaining

international public goods and contribution productivity differentials abstract this paper investigates the impacts of productivity differentials in contributing to the public good on national welfare in the context of non cooperative voluntary provision of a pure public good a country with high productivity does not necessarily enjoy high welfare subsidizing the other country in a contribution game may lead to a strong paradoxical result while a lump sum transfer will lead to a weak paradoxical result we also explore the relationship between the price of the public good and the size of an open club in a multi club model

public policies pressure groups and dead weight costs abstract this paper presents a model of competition among special interest groups for political influence each active group exerts pressure to affect its taxes and subsidies where activities of different groups are related by the equality between total tax collections and total tax subsidies the dead weight costs and benefits of taxes and subsidies play a major role in our model an increase in the dead weight cost of taxation encourages pressure by taxpayers while an increase in the dead weight costs of subsidies discourages pressure by recipients various applications of the analysis are discussed