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RENT DISSIPATION AND THE SOCIAL COST OF PRICE POLICY
Author(s) -
Coggins Jay S.
Publication year - 1995
Publication title -
economics and politics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.822
H-Index - 45
eISSN - 1468-0343
pISSN - 0954-1985
DOI - 10.1111/j.1468-0343.1995.tb00108.x
Subject(s) - economic rent , rent seeking , economics , microeconomics , nash equilibrium , government (linguistics) , dissipation , limit (mathematics) , public economics , thermodynamics , mathematical analysis , linguistics , philosophy , physics , mathematics , politics , political science , law
This paper uses a general equilibrium‐based exchange economy model to examine rent seeking for a price policy. Opposing interests spend resources to influence the government's choice of a price vector. Rents, the willingness to pay for the policy, are determined endogenously from the Nash equilibirum of a non‐cooperative game. Numerical simulations explore the degree to which rents are dissipated by wasteful rent seeking. It is found that dissipation, measured as the ratio of rent‐seeking costs to rents garnered, can grow without limit, and is greatest when opponents are evenly matched. Dissipation is smallest with widely disparate groups, a result that might help explain the underdissipation that seems to occur in many industries.