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Strategic Groups and Rent Dissipation
Author(s) -
Baik Kyung Hwan,
Lee Sanghack
Publication year - 2001
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1093/ei/39.4.672
Subject(s) - rent seeking , contest , economics , microeconomics , group (periodic table) , profitability index , dissipation , economic rent , chemistry , finance , physics , politics , organic chemistry , political science , law , thermodynamics
We consider a rent‐seeking contest in which players can form strategic groups before expending their outlays. We examine the profitability of endogenous group formation and the effect of such group formation on rent dissipation. We show the following: When just one strategic group is formed in equilibrium, group formation is beneficial both to the group members and to the nonmembers, and rent dissipation is smaller than with usual individual rent seeking. However, when more than two strategic groups are formed in equilibrium, group formation is never profitable to any players, and rent dissipation is greater than with individual rent seeking.