Working Paper No. 04-47:
Rents, Dissipation, and Lost Treasures with N Parties

Author(s):

Giuseppe Dari-Mattiacci, Eric Langlais, Francesco Parisi

Date Posted: 2004

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Abstract:

The rent-seeking literature is unanimous on the fact that, in a rent- seeking context, the rent dissipation increases with the number of potential participants. In this paper we analyze the participants' choice to enter the game and their levels of efforts. We show that the usual claim —that the total dissipation approaches the entire value of the rent —applies only when participants are relatively weak. In the presence of strong competitors, the total dissipation actually decreases, since participation in the game is less frequent. We also consider the impact of competitors' exit option, distinguishing between "redistributive rent-seeking" and "productive rent-seeking" situations. In redistributive rent-seeking, no social loss results when all competitors exit the race. In productive rent-seeking, instead, lack of participation creates a social loss (the "lost treasure" effect), since valuable rents are left unexploited. We further show that in N-party rent-seeking contests, the lost-treasure effect perfectly counter-balances the reduction in rent dissipation due to competitors' exit. Hence, unlike redistributive rent-seeking, in productive rent-seeking the total social loss remains equal to the entire rent even when parties grow stronger, irrespective of their number.