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Rent Seeking and Allocative Efficiency
Author(s) -
Lien Donald
Publication year - 2002
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/1468-0106.00154
Subject(s) - stackelberg competition , allocative efficiency , economics , contest , microeconomics , bayesian game , mathematical economics , bayesian probability , rent seeking , revenue , class (philosophy) , order (exchange) , competition (biology) , argument (complex analysis) , subgame perfect equilibrium , complete information , nash equilibrium , game theory , repeated game , computer science , politics , ecology , chemistry , accounting , finance , artificial intelligence , political science , law , biology , biochemistry
This paper considers a rent‐seeking game (specifically, a winner‐takes‐all contest) with incomplete information. By allowing for sequential moves, a Bayesian‐Stackelberg equilibrium can be constructed. It can be shown that, at the Bayesian‐Stackelberg equilibrium, it is always possible that the allocative efficiency argument fails. That is, there are cases in which the Stackelberg follower is more efficient but loses the contest. Using a specific class of distributions, it is also shown that sometimes the corrupt official will choose the Bayesian‐Stackelberg equilibrium over the Bayesian‐Nash equilibrium in order to maximise the expected bribe revenue. That is, when designing the rules of the rent‐seeking game, the dynamic nature of competition will be taken into account.