Public Choice

, Volume 145, Issue 3–4, pp 339–349 | Cite as

Risk-aversion and prudence in rent-seeking games

Article

Abstract

This paper considers a common n-agent symmetric rent-seeking game. It derives conditions so that risk-aversion and risk always decrease rent-seeking efforts. These conditions hold for any regular contest success function when risk-averse rent-seekers are also prudent. Under n=2, prudence is a necessary and sufficient condition for risk-aversion to decrease rent-seeking efforts compared to risk-neutrality. An intuition for this result is given based on a self-protection model.

Risk-aversion Rent-seeking Lobbying Uncertainty Prudence Self-protection 

JEL Classification

C72 D72 D81 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Alcalde, J., & Dahm, M. (2007). Tullock and Hirshleifer: a meeting of the minds. Review of Economic Design, 11, 101–124. CrossRefGoogle Scholar
  2. Bramoullé, Y., & Treich, N. (2009). Can uncertainty alleviate the commons problem? Journal of the European Economic Association, 5, 1042–1067. CrossRefGoogle Scholar
  3. Congleton, R. D., Hillman, A. L., & Konrad, K. A. (2008). 40 years of research on rent-seeking (Vols. 1 & 2). Berlin: Springer. Google Scholar
  4. Corchon, L., & Dahm, M. (2009). Foundations for contest success functions. Economic Theory (forthcoming). Google Scholar
  5. Corcoran, W. J., & Karels, G. V. (1985). Rent-seeking behavior in the long-run. Public Choice, 46, 227–246. CrossRefGoogle Scholar
  6. Cornes, R., & Hartley, R. (2003). Risk aversion, heterogeneity and contests. Public Choice, 117, 1–25. CrossRefGoogle Scholar
  7. Cornes, R., & Hartley, R. (2008). Risk aversion in symmetric and asymmetric contests. Economic Theory (forthcoming). Google Scholar
  8. Dachraoui, K., Dionne, G., Eeckhoudt, L., & Godfroid, P. (2004). Comparative mixed risk aversion: definition and application to self-protection and willingness to pay. Journal of Risk and Uncertainty, 29, 261–276. CrossRefGoogle Scholar
  9. Dixit, A. (1987). Strategic behavior in constests. American Economic Review, 77, 891–898. Google Scholar
  10. Eeckhoudt, L., & Gollier, C. (2005). The impact of prudence on optimal prevention. Economic Theory, 26, 989–994. CrossRefGoogle Scholar
  11. Eeckhoudt, L., Gollier, C., & Schlesinger, H. (2005). Economic and financial decisions under risk. Princeton: Princeton University Press. Google Scholar
  12. Eso, P., & White, L. (2004). Precautionary bidding in auctions. Econometrica, 72, 77–92. CrossRefGoogle Scholar
  13. Garfinkel, M. R., & Skaperdas, S. (2007). Economics of conflict: an overview. In T. Sandler & K. Hartley (Eds.), Handbook of defense economics (Vol. II, pp. 649–709). Google Scholar
  14. Geiss, C., Menezes, C., & Tressler, J. (1980). Increasing downside risk. American Economic Review, 70, 921–931. Google Scholar
  15. Hillman, A. L., & Katz, E. (1984). Risk-averse rent seekers and the social cost of monopoly power. Economic Journal, 94, 104–110. CrossRefGoogle Scholar
  16. Hirshleifer, J. (2001). The dark side of the force. Cambridge: Cambridge University Press. Google Scholar
  17. Jullien, B., Salanié, B., & Salanié, F. (1999). Should more risk-averse agents exert more efforts? Geneva Papers on Risk and Insurance Theory, 24, 19–28. CrossRefGoogle Scholar
  18. Kimball, M. (1990). Precautionary savings in the small and in the large. Econometrica, 58, 53–73. CrossRefGoogle Scholar
  19. Konrad, K. A. (2007). Strategy in contests: an introduction. Mimeo. Google Scholar
  20. Konrad, K. A., & Schlesinger, H. (1997). Risk aversion in rent-seeking and rent-augmenting games. Economic Journal, 107, 1671–1683. CrossRefGoogle Scholar
  21. Leland, H. E. (1968). Savings and uncertainty: the precautionary demand for saving. Quarterly Journal of Economics, 45, 621–636. Google Scholar
  22. Malueg, D. A., & Yates, A. (2005). Equilibria and comparative statics in two-player contests. European Journal of Political Economy, 21, 738–752. CrossRefGoogle Scholar
  23. Milgrom, P., & Roberts, J. (1994). Comparing equilibria. American Economic Review, 84, 441–459. Google Scholar
  24. Pratt, J. W. (1964). Risk aversion in the small and in the large. Econometrica, 32, 122–136. CrossRefGoogle Scholar
  25. Perez-Castrillo, D. J., & Verdier, T. (1992). A general analysis of rent-seeking games. Public Choice, 73, 335–350. CrossRefGoogle Scholar
  26. Skaperdas, S. (1996). Contest success functions. Economic Theory, 7, 283–290. Google Scholar
  27. Skaperdas, S., & Gan, L. (1995). Risk aversion in contests. Economic Journal, 105, 951–962. CrossRefGoogle Scholar
  28. Szidarowszky, F., & Okuguchi, K. (1997). On the existence and uniqueness of pure Nash equilibrium in rent-seeking games. Games and Economics Behavior, 18, 135–140. CrossRefGoogle Scholar
  29. Tullock, G. (1980). Efficient rent-seeking. In J. M. Buchanan, R. D. Tollison, & G. Tullock (Eds.), Toward a theory of the rent-seeking society (pp. 97–112). College Station: Texas A. & M. University Press. Google Scholar
  30. Van Long, N., & Vousden, N. (1987). Risk-averse rent seeking with shared rents. Economic Journal, 971–985. Google Scholar
  31. Wärneryd, K. (2003). Information in conflicts. Journal of Economic Theory, 121–136. Google Scholar
  32. Yamazaki, T. (2009). The uniqueness of pure-strategy Nash equilibrium in rent-seeking games with risk-averse players. Public Choice, 139(3–4), 335–342. CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  1. 1.Toulouse School of Economics (LERNA-INRA)ToulouseFrance

Personalised recommendations