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Privately informed seekers of an uncertain rent

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Abstract

Two departures from antecedent rent-seeking models are invoked: a rent of unknown size is sought, and rent seekers obtain private imperfect estimates of this size. A symmetric equilibrium for a fixed number of rent seekers is characterized, and shown to underdissipate the rent. Then a model of the decision to obtain private information and participate in the rent-seeking contest is built. The symmetric equilibrium participation probability equates expected profit to participation costs. A simple formula for underdissipation results: dissipation is incomplete precisely by the expected aggregate participation costs. If an award mechanism can attain a lower level of dissipation for a fixed number of seekers, then it will raise the endogenous probability of participation, and as a result will dissipate less rent in the equilibrium with an endogenous number of seekers.

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Authors and Affiliations

  1. Faculty of Management and RUTCOR, Rutgers University, 07102, Newark, NJ

    Ronald M. Harstad

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  1. Ronald M. Harstad
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Additional information

Bill Shughart and a referee offered encouragement and useful suggestions. They and Mike Baye directed me to relevant literature. The US National Science Foundation supported this research through grant SES 91-08551. I am grateful and solely responsible for errors.

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Harstad, R.M. Privately informed seekers of an uncertain rent. Public Choice 83, 81–93 (1995). https://doi.org/10.1007/BF01047685

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  • DOI: https://doi.org/10.1007/BF01047685

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