The Incidence of Overdissipation in Rent-Seeking Contests
This paper reconsiders Tullock's analysis of rent seeking and wasteful overdissipation. The purpose of this paper is to point out that even though his original analysis of overdissipation is technically flawed, the definition of overdissipation can be modified to explain instances in which rational rent-seekers spend more to win a prize than the prize is worth. We showed before that equilibrium mixed strategies in the Tullock game do not permit overdissipation in expectation: the expected total amount spent competing for rents cannot exceed the value of the prize. However, since the equilibrium involves mixed-strategies for particular realizations of the mixed strategies the total amount spent competing for rents can exceed the value of the prize! In fact, we show that the cross-sectional incidence of overdissipation may be quite high. For a symmetric perfectly discriminating contest (R = &inf;), the probability of overdissipation in a symmetric equilibrium ranges from exactly one-half in the two player case to approximately .44 as the number of players approaches infinity.
|Tinbergen Institute Discussion Paper Series|
Baye, M.R, de Vries, C.G, & Kovenock, D. (1997). The Incidence of Overdissipation in Rent-Seeking Contests (No. TI 97-045/2). Tinbergen Institute Discussion Paper Series. Retrieved from http://hdl.handle.net/1765/7804