Rent-seeking, rent-defending, and rent dissipation

Summary and conclusions

In the preceding analyses of rent-defending, the Posner model yielded welfare losses in excess of the combined areas of the Tullock rectangle and the Harberger triangle in only one instance. Furthermore, this particular circumstance necessitated voluntary participation in a game with a negative expected value.¹³ For the Tullock-Rogerson model, the explicit addition of rent-defenders had no impact on aggregate dissipation.

In addition, this paper introduced two implications of nested games on rent-seeking theory. First, in cases where the Posner expected value bid applies, coalitions will not form. Second, coalitions arise as a result of wealth-maximizing behavior in the Tullock-Rogerson strategic game, but contrary to previous authors this model suggests, rent-seeking expenditures fall. However, the organizational and enforcement costs of coalitions reduces the welfare gain and under some circumstances may negate the gains to coalition formation.

There seem to be two common pitfalls in the analysis of welfare costs of rent-seeking activities. First, the rent at stake is often incorrectly identified. Second, the method used to allocate rents, or the structure of the game, is not explicitly formulated. Viewing rent as claims to property rights should help alleviate the problems arising from the former, and continuing research into alternative rent-seeking models represents a movement toward the latter.¹⁴