Public Choice

, Volume 139, Issue 1–2, pp 171–196 | Cite as

Seeking rents in the shadow of Coase

  • Giuseppe Dari-Mattiacci
  • Sander Onderstal
  • Francesco Parisi
Open Access


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 possible misallocations, may 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, also considering the case of endogenous bargaining power.


Rent-seeking Asymmetric rent valuations Rent-dissipation Rent-misallocation 

JEL Classification

C72 D72 


  1. Allard, R. J. (1988). Rent-seeking with non-identical players. Public Choice, 57, 3–14. Google Scholar
  2. Anderson, T. L., & Hill, P. J. (1990). The race for property rights. Journal of Law and Economics, 33, 177–197. CrossRefGoogle Scholar
  3. Barzel, Y. (1968). Optimal timing of innovations. Review of Economics and Statistics, 50, 348–355. CrossRefGoogle Scholar
  4. Barzel, Y. (1974). A theory of rationing by waiting. Journal of Law and Economics, 17, 73–95. CrossRefGoogle Scholar
  5. Baik, K. H. (1994). Effort levels in contests with two asymmetric players. Southern Economic Journal, 61, 367–378. CrossRefGoogle Scholar
  6. Baye, M. R., Kovenock, D., & De Vries, C. G. (1993). Rigging the lobbying process: An application of the all-pay auction. American Economic Review, 83, 289–294. Google Scholar
  7. Bebchuk, L. A. (2001). Property rights and liability rules: The ax ante view of the cathedral. Michigan Law Review, 100, 601–639. CrossRefGoogle Scholar
  8. Che, Y.-K., & Gale, I. L. (1998). Caps on political lobbying. American Economic Review, 88, 643–651. Google Scholar
  9. Coase, R. H. (1960). The problem of social cost. Journal of Law and Economics, 3, 1–44. CrossRefGoogle Scholar
  10. Congleton, R. D., Hillman, A. L., & Konrad, K. (Eds.). (2008). Forty years of rent-seeking research. Heidelberg: Springer (Two Volumes). Google Scholar
  11. Dari-Mattiacci, G., & Parisi, F. (2005). Rent, dissipation, and lost treasures: Rethinking Tullock’s paradox. Public Choice, 124, 411–422. CrossRefGoogle Scholar
  12. Dari-Mattiacci, G., Langlais, E., Lovat, B., & Parisi, F. (2007). Crowding-out in productive and redistributive rent-seeking. Public Choice, 133, 199–229. CrossRefGoogle Scholar
  13. Dasgupta, P., & Stiglitz, J. (1980). Uncertainty, industrial structure, and the speed of R&D. The Bell Journal of Economics, 11, 1–28. CrossRefGoogle Scholar
  14. Epstein, G. S., & Nitzan, S. (2002). Asymmetry and corrective public policy in contests. Public Choice, 113, 231–240. CrossRefGoogle Scholar
  15. Epstein, G. S., & Nitzan, S. (2007). Endogenous public policy and contests. Berlin: Springer. Google Scholar
  16. Gahvari, F. (1989). Licensing and nontransferable rents: Comment. American Economic Review, 70, 906–909. Google Scholar
  17. Garratt, T., & Tröger, T. (2006). Speculation in standard auctions with resale. Econometrica, 74, 753–769. CrossRefGoogle Scholar
  18. Glaeser, E. L., & Luttmer, E. F. P. (2003). The misallocation of housing under rent control. American Economic Review, 93, 1027–1046. CrossRefGoogle Scholar
  19. Goeree, J. K., Maasland, E., Onderstal, S., & Turner, J. L. (2005). How (not) to raise money. Journal of Political Economy, 113, 897–918. CrossRefGoogle Scholar
  20. Grossman, S. J., & Hart, O. D. (1986). The cost and benefit of ownership: A theory of lateral and vertical integration. Journal of Political Economy, 94, 691–719. CrossRefGoogle Scholar
  21. Hafalir, I., & Krishna, V. (2008). Asymmetric auctions with resale. American Economic Review, 98, 87–112. CrossRefGoogle Scholar
  22. Higgins, R. S., Shughart, W. F., & Tollison, R. D. (1985). Free entry and efficient rent-seeking. Public Choice, 46, 247–258. CrossRefGoogle Scholar
  23. Hillman, A. L., & Riley, J. G. (1989). Politically contestable rents and transfers. Economics and Politics, 1, 17–39. CrossRefGoogle Scholar
  24. Hirshleifer, J. (1989). Conflict and rent-seeking success functions: Ratios vs. difference models of relative success. Public Choice, 63, 101–112. CrossRefGoogle Scholar
  25. Hurley, T. M. (1998). Rent dissipation and efficiency in a contest with asymmetric valuations. Public Choice, 94, 289–298. CrossRefGoogle Scholar
  26. Jacklin, C. J. (1987). Demand deposits, trading restrictions and risk-sharing. In E. C. Prescott & N. Wallace (Eds.), Contractual arrangements for intertemporal trade (pp. 27–46). Minneapolis: University of Minnesota Press. Google Scholar
  27. Konrad, K. (2007). Strategy in contests—An introduction (WZB-Markets and Politics Working Paper No. SP II 2007-01). Google Scholar
  28. Krishna, V. (2002). Auction theory. San Diego: Academic Press. Google Scholar
  29. Krueger, A. O. (1974). The political economy of the rent-seeking society. American Economic Review, 64, 291–303. Google Scholar
  30. Leininger, W. (1993). More efficient rent-seeking—A Münchhausen solution. Public Choice, 75, 43–62. CrossRefGoogle Scholar
  31. Lockard, A. A., & Tullock, G. (Eds.). (2001). Efficient rent-seeking: chronicle of an intellectual quagmire. Dordrecht: Kluwer Academic. Google Scholar
  32. Lott, J. R. Jr. (1987). Licensing and nontransferable rents. American Economic Review, 77, 453–455. Google Scholar
  33. Lueck, D. (1995). The rule of first possession and the design of the law. Journal of Law and Economics, 38, 393–436. CrossRefGoogle Scholar
  34. Matros, A. (2006). Rent-seeking with asymmetric valuations: Addition or deletion of a player. Public Choice, 129, 369–380. CrossRefGoogle Scholar
  35. Mortensen, D. T. (1982). Property rights and efficiency in mating, racing and related games. American Economic Review, 72, 968–979. Google Scholar
  36. Nash, J. (1950). The bargaining problem. Econometrica, 18, 155–162. CrossRefGoogle Scholar
  37. Nti, K. O. (1999). Rent-seeking with asymmetric valuations. Public Choice, 98, 415–430. CrossRefGoogle Scholar
  38. Onderstal, S. (2007). The optimality of ignoring lobbyists (Working Paper). University of Amsterdam. Google Scholar
  39. Parisi, F. (2002). Entropy in property. American Journal of Comparative Law, 50, 595–632. CrossRefGoogle Scholar
  40. Posner, R. (1975). The social costs of monopoly and regulation. Journal of Political Economy, 83, 807–827. CrossRefGoogle Scholar
  41. Rubinstein, A. (1982). Perfect equilibrium in a bargaining model. Econometrica, 50, 97–109. CrossRefGoogle Scholar
  42. Stein, W. (2002). Asymmetric rent-seeking with more than two contestants. Public Choice, 113, 325–336. CrossRefGoogle Scholar
  43. Suen, W. (1989). Rationing and rent dissipation in the presence of heterogeneous individuals. Journal of Political Economy, 97, 1384–1394. CrossRefGoogle Scholar
  44. Tollison, R. D. (2003). Rent-seeking. In C. K. Rowley & F. Schneider (Eds.), Encyclopedia of public choice II (pp. 495–499). Dordrecht: Kluwer Academic. Google Scholar
  45. Tullock, G. (1967). The welfare cost of tariffs, monopolies and theft. Western Economic Journal, 5, 224–232. Google Scholar
  46. Tullock, G. (1980). Efficient rent-seeking. In J. M. Buchanan, G. Tollison, & G. Tullock (Eds.), Toward a theory of the rent-seeking society (pp. 97–112). College Station: Texas A&M University Press. Google Scholar
  47. Zardkoohi, A., & Pustay, M. (1989). Does transferability affect the social costs of licensing? Public Choice, 62, 187–190. CrossRefGoogle Scholar

Copyright information

© The Author(s) 2008

Authors and Affiliations

  • Giuseppe Dari-Mattiacci
    • 1
  • Sander Onderstal
    • 2
  • Francesco Parisi
    • 3
    • 4
  1. 1.ACLE and Tinbergen InstituteUniversity of AmsterdamAmsterdamThe Netherlands
  2. 2.Amsterdam School of Economics and Tinbergen InstituteUniversity of AmsterdamAmsterdamThe Netherlands
  3. 3.School of LawUniversity of MinnesotaMinneapolisUSA
  4. 4.Department of EconomicsUniversity of BolognaBolognaItaly

Personalised recommendations