- Seeking Rents in the Shadow of Coase
- Number of pages
- Amsterdam: Faculteit Economie en Bedrijfskunde
- Amsterdam Center for Law & Economics Working Paper
- Volume | Edition (Serie)
- Document type
- Working paper
- Interfacultary Research Institutes
Faculty of Economics and Business (FEB)
- Amsterdam Center for Law & Economics (ACLE)
Amsterdam School of Economics Research Institute (ASE-RI)
In this paper, we study a two-stage rent-seeking game. In the first stage, contestants compete à-la-Tullock; in the second stage, the winner can resell the rent à-la-Coase. We consider a complete information Tullock game in which the contestants have different valuations for the rent. The analysis focuses on the ex ante effects of a secondary market on efforts, payoffs, rent-dissipation and rent-misallocation. We show that the secondary market, while correcting misallocation, may, but does not necessarily, exacerbate rent dissipation. In some situations, the increase in rent dissipation more than offsets the allocative advantage, so that a secondary market might reduce welfare. We further show how the effect of ex post tradeability on welfare depends on the parties' bargaining power and valuations of the rent.
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