Policy making and rent-dissipation: An experimental test
Abbreviated Journal Title
rent-dissipation; rent-seeking; transfers; experimental economics; MIXED-STRATEGY EQUILIBRIA; POLITICAL-ECONOMY; PRISONERS-DILEMMA; PRESSURE GROUPS; SEEKING; GAMES; COOPERATION; BEHAVIOR; Economics
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.
"Policy making and rent-dissipation: An experimental test" (2007). Faculty Bibliography 2000s. 6898.