Skip to main content
SpringerLink
Log in

Policy making and rent-dissipation: An experimental test

  • Published:
Experimental Economics Aims and scope Submit manuscript

Abstract

We present a transfer-seeking model of political economy that links the theory of Becker (1983) with Tullock-type models of politically contestable rents. In our model the size of the transfer is determined endogenously, and over-dissipation of rents is predicted even under conditions of risk-neutrality and perfect rationality. We implement an empirical test of this model by collecting behavioral data in a laboratory experiment. We confirm the existence of behavior that leads to over-dissipation of rents in games with both symmetric and asymmetric political power. To the extent that the transfer-seeking costs are social costs, our findings imply that the total costs of running government might be greatly underestimated if the value of the rent is used as a proxy for the rent-seeking cost. We also confirm the hypotheses that lowering the political power of one player can lead to smaller rent-seeking expenditures and to larger transfers

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Anderson, S. P., Goeree, J. K., & Holt, C. A. (1998). The all-pay auction: equilibrium with bounded rationality. Journal of Political Economy, 106, 828–853.

    Article  Google Scholar 

  • Anderson, L. R., & Stafford, S. L. (2003). An experimental analysis of rent seeking under varying competitive condition. Public Choice, 115, 199–216.

    Google Scholar 

  • Andreoni, J., & Miller, J. H. (1993). Rational cooperation in the finitely repeated prisoner’s dilemma: Experimental evidence. Economic Journal, 103, 570–585.

    Article  Google Scholar 

  • Baye, M. R., Kovenock, D., & De Vries, C. G. (1994). The solution to the Tullock rent-seeking game when R > 2: Mixed-strategy equilibria and mean dissipation rates. Public Choice, 81, 363–380.

    Article  Google Scholar 

  • Becker, G. S. (1983). A theory of competition among pressure group for political influence. Quarterly Journal of Economics, 98, 371–400.

    Article  Google Scholar 

  • Becker, G. S. (1985). Public policies, pressure groups, and deadweight costs. Journal of Public Economics, 28, 329–347.

    Article  Google Scholar 

  • Cason, T. N., & Mui, V. (2003). Testing political economy models of reform in the laboratory. American Economic Review: Papers and Proceedings, 93(2), 208–212

    Google Scholar 

  • Cason, T. N., & Mui, V. (2005). Uncertainty and resistance to reform in laboratory participation games. European Journal of Political Economy, 21, 708–737.

    Article  Google Scholar 

  • Coggins, J. S. (1995). Rent-dissipation and the social cost of price policy. Economics and Politics, 7, 147–166.

    Article  Google Scholar 

  • Cooper, R., DeJong, D. V., Forsythe, R., & Ross, T. W. (1996). Cooperation without reputation: experimental evidence from prisoners’ dilemma games. Games and Economic Behavior, 12, 187–218.

    Article  Google Scholar 

  • Davis, D. D., & Reilly R. J. (1998). Do too many cooks always spoil the sew? An experimental analysis of rent-seeking and the role of a Strategic buyer. Public Choice, 95, 89–115.

    Article  Google Scholar 

  • Dixit, A., Grossman, G. M., & Helpman, E. (1997). Common agency and coordination: general theory and application to government policy making. Journal of Political Economy, 105, 752–769.

    Article  Google Scholar 

  • Goeree, J. K., & Holt, C. A. (2000). Asymmetric inequalit aversion and noisy behavior in alternating-offer bargaining games. European Economic Review, 44, 1079–1089.

    Article  Google Scholar 

  • Goeree, J. K., & Holt, C. A. (2004). Models of noisy introspection. Games and Economic Behavior, 46, 365–382.

    Article  Google Scholar 

  • Hillman, A. L. (1989). The political economy of protection. New York: Harwood Academic Publishers.

    Google Scholar 

  • Hillman, A. L. (2005). An explanation of anomalous behavior in models of political participation. American Political Science Review, 99(2), 201–213

    Google Scholar 

  • Hillman, A. L., & Katz, E. (1984). Risk-averse rent seekers and the social cost of monopoly power. Economic Journal, 94, 104–110.

    Article  Google Scholar 

  • Hillman, A. L., & Riley, J. R. (1989). Politically contestable rents and transfers. Economics and Politics, 1, 17–39.

    Article  Google Scholar 

  • Jeong, K. S., Bullock, D. S., & Garcia, P. (1999). Testing the efficient redistribution hypothesis: An application to Japanese beef policy. American Journal of Agricultural Economics, 81, 408–423.

    Article  Google Scholar 

  • Krueger, A. O. (1974). The political economy of the rent-seeking society. American Economic Review, 64, 291–303.

    Google Scholar 

  • Ledyard, J. O. (1995). Public goods: a survey of experimental research. In J. H. Kagel, A. E. Roth, (eds.), The handbook of experimental economics (pp. 111–194). Princeton University Press.

  • McKelvey, R. D., McLennan, A. M., & Turocy, T. L. (2005). Gambit: software tools for game theory, Version 0.2005.12.12. http://econweb.tamu.edu/gambit. ”

  • McKelvey, R. D., & Palfrey, T. R. (1995). Quantal response equilibria in normal form games. Games and Economic Behavior, 10(60), 6–38.

    Article  Google Scholar 

  • McKelvey, R. D., & Palfrey, T. R. (1998). Quantal response equilibria in extensive form games. Experimental Economics, 1, 9–41.

    Google Scholar 

  • McKelvey, R. D., Palfrey, T. R., & Weber, R. A. (2000). The effects of payoff magnitude and heterogeneity on behavior in 2× 2 games with unique mixed strategy equilibria. Journal of Economic Behavior and Organization, 42, 523–548.

    Article  Google Scholar 

  • Millner, E. L., & Pratt, M. D. (1989). An experimental investigation of efficient rent-seeking. Public Choice, 62, 139–151.

    Article  Google Scholar 

  • Potters, J., de Vries, C. G., & van Winden, F. (1998). An experimental examination of rational rent-seeking. European Journal of Political Economy, 14, 783–800

    Google Scholar 

  • Schotter, A., & Weigelt, K. (1992). Asymmetric tournaments, equal opportunity laws, and affirmative action: some experimental results. Quarterly Journal of Economics, 107, 511–539.

    Article  Google Scholar 

  • Shapiro, S. S., & Wilk, M. B. (1965). An analysis of variance test for normality (complete samples). Biometrika, 52, 591–611.

    Google Scholar 

  • Shogren, J. F., & Baik, K. H. (1991). Re-examining efficient rent-seeking in laboratory markets. Public Choice, 69, 69–79.

    Article  Google Scholar 

  • Snedecor, G. W., & Cochran, W. G. (1989). Statistical methods, 8th ed. Ames, IA: Iowa State University Press.

    Google Scholar 

  • Sobel, R. S. (1999). Theory and evidence on the political economy of the minimum wage. Journal of Political Economy, 107, 761–785.

    Article  Google Scholar 

  • Tullock, G. (1980). Efficient rent-seeking. In J. M. Buchanan, R. D. Tollison and G. Tullock, (eds.), Toward a theory of the rent-seeking society (pp. 97–112). College Station, Texas: Texas A&M University Press.

  • Tullock, G. (1984). Long-run equilibrium and total expenditures in rent-seeking: A comment. Public Choice, 43, 95–97.

    Article  Google Scholar 

  • Tullock, G. (1985). Back to the bog. Public Choice, 46, 259–263.

    Article  Google Scholar 

  • Tullock, G. (1987). Another part of the swamp. Public Choice, 54, 83–84.

    Article  Google Scholar 

  • Tullock, G. (1989). Editorial comment. Public Choice, 62, 153–154.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Agricultural and Consumer Economics, University of Illinois, 326 Mumford Hall, 1301 W. Gregory Drive, Urbana, IL, 61801, USA

    David S. Bullock

  2. College of Business Administration, Department of Economics, University of Central Florida, P.O. Box 161400, Orlando, FL, 32816-1400, USA

    E. Elisabet Rutström

Authors
  1. David S. Bullock
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. E. Elisabet Rutström
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to E. Elisabet Rutström.

Additional information

JEL Classification C91, D72

Electronic supplementary material

Rights and permissions

Reprints and permissions

About this article

Cite this article

Bullock, D.S., Rutström, E.E. Policy making and rent-dissipation: An experimental test. Exp Econ 10, 21–36 (2007). https://doi.org/10.1007/s10683-006-9133-1

Download citation

  • Received:

  • Revised:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10683-006-9133-1

Keywords

Search

Navigation