Abstract
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.
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The authors would like to thank two anonymous referees, Lloyd Cohen, Ben Depoorter, Bruno Frey, David Haddock, Tom Hazlett, Joris van Hoboken, Bruce Kobayashi, Peter Menell, Ilia Rainer, Hans-Bernd Schäfer, William F. Shughart II, Gordon Tullock, and the participants in the 2008 annual meeting of the American Law and Economics Association at NYU, the 2006 Erasmus Law and Economics Workshop at Hamburg University, the 2006 annual meeting of the Public Choice Society in New Orleans, the 2006 annual meeting of the Canadian Law and Economic Association at the University of Toronto, and seminars at Ghent University, University of Zurich, St. Thomas University, Institute for Information Law at the University of Amsterdam, George Mason University School of Law, University of Texas School of Law, and University of Minnesota Department of Applied Economics for helpful comments.
G. Dari-Mattiacci gratefully acknowledges the financial support from the NWO grant 016.075.332.
S. Onderstal gratefully acknowledges the financial support from the NWO grant 453.03.606.
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Dari-Mattiacci, G., Onderstal, S. & Parisi, F. Seeking rents in the shadow of Coase. Public Choice 139, 171–196 (2009). https://doi.org/10.1007/s11127-008-9387-6
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DOI: https://doi.org/10.1007/s11127-008-9387-6