Rent seeking and the value of time

This paper focuses on the question of how rivals’ rent-seeking expenditures and investment expenditures are affected by the temporal dimension of those cash flows as well as the timing of the cash flow of monopoly rents. The paper applies methods from statistical reliability theory to derive five propositions establishing the conditions that must be satisfied if the rivals apportion their rent seeking and investment expenditures to maximize their certainty equivalents of the monopoly rent. The propositions explicate the responses of the rivals to changes in economic parameters characterizing the rent-seeking contest such as a change in the duration of the monopoly rent cash flow or a change in the number of rivals.     

Risk,rent seeking and the social cost of monopoly power

Some recent empirical studies that have estimated the social cost of monopoly power have included in these estimates observed monopoly rents as a proxy for the unobserved value of the resources expended by rent seekers. This has involved adding these estimates of resources wasted by rent seekers to estimates of deadweight welfare loss triangles so as to produce an overall estimate of the social cost of monopoly. The present paper points out that each firm seeking a monopoly rent flow not only may be uncertain about obtaining the flow but also about retaining it in future periods. It is shown that this is likely to cause the proportion of the rent flow converted into social cost to be well below 100% regardless of whether the rent sought is small relative to initial wealth and regardless of whether rent seekers are risk-neutral or risk-averse. These findings demonstrate that large errors are likely to be made in monopoly welfare loss studies if observed monopoly rents continue to be employed as a measure of the value of resources used in rent-seeking activities.     

Pre-assigned rents and bureaucratic friction

In this paper we study the endogenous determination of bureaucratic friction in a bureaucratic contest with () and without (n = 1) rent contestability. When n= 1 bureaucratic impediments induce the individual to undertake rent-securing activities at the same level as in the two-player rent-seeking contest. However, under rent contestability the bureaucracy no longer serves as a means of extracting resources from the public. The paper concludes with the study of the effect of ‘net costs’ on bureaucratic friction. It turns out that under cotestability the only reason for creating bureaucratic friction is the ‘negative costs’ it incurs while when n = 1 the effect of the bureaucrat's net costs of generating bureaucratic friction on the optimal degree of such friction is ambiguous. Received: October 30, 2000 / Accepted: December 28, 2001 RID="*" ID="*" The authors are grateful to two anonymous referees for their valuable comments     

The Economic Impact of Rent Seeking and Military Expenditures: A Comparison of Third World Military and Civilian Regimes

Abstract . The general stereotype of modern Third World military regimes is that of ultra-conservativism combined with military force to dismantle organizations of popular expression. These organizations through their rent-seeking activities are assumed to have reduced overall rates of economic growth. Empirically, the paper does find some support for this line of argument. However, it is apparent that the traditional stereotypes are inappropriate. The two regime types differ largely in terms of contrasting styles of economic management. Military regimes create an environment where military expenditures tend to have a positive overall impact on economic growth Civilian regimes having less control over rent seeking groups do not appear to be able to combine rent seeking activities and military expenditures in a manner conducive to overall economic growth.     

Manufacturing Resistance: Rationalizing the Irrationality of Managerial Control on the Shop Floor in a US Medical Electronics Factory

Juravich (1985) asserts that the organization of US industrial manufacturing is irrational as well as appearing chaotic from the workers’ viewpoint because of management’s refusal to integrate the workers’ knowledge into the production process. Because of this, Juravich argues, if and when the workers’ knowledge is integrated into the production system, the workers no longer will experience “chaos on the shop floor.” Extending Devinatz’s (1993) analysis in response to Juravich, this article argues that workers use resistance as a logical strategy for rationalizing what they perceive to be the irrationality of the shop floor. Utilizing Kusterer’s (1978) work, I argue that the use of many, but not all, resistance strategies constitutes a type of “survival knowledge” acquired and used by workers in response to managerial control. I maintain that these strategies constitute a special type of workplace resistance which I refer to as “pure and simple resistance.”     

Growth, public investment and corruption with failing institutions

Corruption is thought to prevent poor countries from catching up with richer ones. We analyze one channel through which corruption hampers growth: public investment can be distorted in favor of specific types of spending for which rent-seeking is easier and better concealed. To study this distortion, we propose a dynamic model where households vote for the composition of public spending, subject to an incentive constraint reflecting individuals’ choice between productive activity and rent-seeking. In equilibrium, the structure of public investment is determined by the predatory technology and the distribution of political power. Among different regimes, the model shows a possible scenario of distortion without corruption in which there is no effective corruption but the possibility of corruption still distorts the allocation of public investment. We test the implications of the model on a set of countries using a two-stage least squares estimation. We find that developing countries with high predatory technology invest more in housing and physical capital in comparison with health and education. The reverse is true for developed countries.      

Towards a framework for the elicitation of dilemmas

This paper covers the main findings of the doctoral research that was concerned with seeking to extend aspects of dilemma theory. In professional practice, the Trompenaars Hampden-Turner Dilemma Reconciliation Process^TM is a vehicle delivering dilemma theory in application. It informs a manager or leader on how to explore the dilemmas they face, how to reconcile the tensions that result, and how to structure the action steps for implementing the reconciled solutions. This vehicle forms the professional practice of the author who seeks to bring more rigor to consulting practice and thereby also contribute to theory development in the domain. The critical review of dilemma theory reveals that previous authors are inconsistent and variously invalid in their use of the terms ‘dilemma theory,’ ‘dilemma methodology,’ ‘dilemma process,’ ‘dilemma reconciliation,’ etc., and therefore an attempt is made to resolve these inconsistencies by considering whether ‘dilemmaism’ at the meta-level might be positioned as a new paradigm of inquiry for (management) research that embodies ontological, epistemological, and methodical premises that frame an approach to the resolution of real world business problems in (multi) disciplinary; (multi) functional and (multi) cultural business environments. This research offers contributions to knowledge, professional practice and theory development from the exploration of the SPID model as a way to make the elicitation of dilemmas more rigorous and structured and in the broader context of exploring ‘dilemmaism’ as a new paradigm of inquiry.     

Dynamic Lobbying Conflicts

This paper analyzes a dynamic lobbying model in which two antagonistic lobbies compete with each other for a prize over two time periods that are linked through status quo bias. The attacker has to decide whether to attempt an attack on the status quo already in the first period or whether to wait. We identify how the attacker’s behavior in the dynamic model differs from that in a comparable static model. Two antagonistic effects are the “option value effect” that is similar to the real option effect in the theory of investment decisions under uncertainty; and a “defender discouragement effect” that often makes change cheaper to achieve than in a comparable static model.      

Adjusting for cultural differences,a new DEA model applied to a merged bank

The usefulness and application of Data Envelopment Analysis (DEA) efficiency measurements is usually limited by the requirement of consistent operating circumstances. However, in many real world situations this is not the case, so to overcome this problem, this paper reports on a new strategy by inventing a Culturally Adjusted DEA model to benchmark business units that operate under different cultural (business) environments. This is especially useful when these environmental factors are partial causes of inefficiency and can not be simply incorporated into a DEA model as inputs or outputs. A simulation analysis is conducted to examine the effectiveness of the CA-DEA model for controlling these environmental effects. This model is applied to a real life efficiency study of two major financial firms in Canada in 2000, when the two entities started to consolidate and merge their branch networks. Two cultural indices are identified to represent a firm’s unique operating environment, one to capture the nature of a firm’s corporate strategies (Corporate Index), and the other to estimate the effectiveness of a firm’s operational systems (Service Index). The results show that a firm’s corporate culture has a significant influence on its branches’ efficiency and this, we found, is often neglected in such studies. This paper also makes a contribution to the bank merger literature by providing an internal view of the potential benefits that may result from sharing cultural advantages while identifying the true managerial inefficiencies.     

To dissent or not to dissent? Informative dissent and parliamentary governance

Legislative dissent has detrimental effects for both party and legislator, i.e., legislators depend on their party label for re-election, which value in turn depends in part on the party’s reputation of cohesiveness. Commonly dissent has been attributed to “extreme” preferences. I provide an informational rationale for dissent. Costly dissent allows the legislator to credibly signal information about his constituency’s preferences to the Cabinet. As a result the Cabinet can better calibrate its policies with the electorate’s preferences. Dissent is shown to depend on policy preferences as well a the legislators’ electoral strength, electoral volatility, and the cost of dissent. Finally, the results suggests that parties may sometimes benefit from tolerating some level of dissent. I am grateful to Christopher Kam, Randall Calvert, John Duggan, Mark Fey, Eduardo Leoni, Sona Golder, and the anonymous referees for their helpful comments and suggestions. I also wish to thank the Political Institutions and Public Choice Program at Michigan State University for its support. All remaining errors are mine.     

Bargaining and exclusivity in a borrower–lender relationship

This paper presents a stylized model of a borrower–lender relationship where funds are gradually invested in a project with uncertain return. We show that an exclusive financing relationship arises endogenously in equilibrium due to initial lender’s superior information on the project’s progress. The analysis also identifies a novel distortionary effect of exclusivity and the consequent loss of future rents on the ex-ante choices of the borrower. When she chooses the amount of funds to be initially invested in the project, the borrower chooses to overinvest making the future rent extraction by the initial lender as costly as possible. We would like to thank Alberto Bisin, Andrew Chen, Boyan Jovanovic, Hideo Konishi, David Mauer, Efe Ok, Mike Riordan, Charles A. Wilson, and seminar participants at Society of Economic Design 2002 meetings in New York and Southern Methodist University for helpful comments. The usual disclaimer applies.     

A Q-Analysis of Census Data: Intra-Household Income Allocation and School Attendance in Chiapas, Mexico

Q-analysis, introduced by a mathematician Ron Atkin, is a useful tool to explore social structures. I introduce essential concepts and techniques of q-analysis to show q-analysis’s potential ability to analyze and extract information from census data – the work that most researchers have done mainly with statistical methods. Using Mexican census and q-analysis, I examine whether children of female-headed household aged 15–19 were more likely to attend school than male-headed household children in Chiapas, Mexico in 2000. My findings are consistent with the large body of previous research, many of which were conducted with statistical methods: women’s control of income tends to results in a better welfare for their children, defined as children’s school attendance by the sex of heads of household in my study. I evaluate the advantages and disadvantages of a-analysis of census data. I conclude that while it has some weaknesses, q-analysis is a complimentary method to statistical methods for analysis of census data that may overcome some limitations that statistical methods often face such as an incapability of handling a small sample.     

Prospect theory and risk appetite: an application to traders’ strategies in the financial market

According to behavioral finance theories, in this article we develop a dynamic model with heterogeneous traders, where the asset price is determined by the interaction among four different groups of agents: trend reversers, trend followers, risk averters and risk seekers. The main purpose of the study is centered on modeling and testing how the market efficiency changes along with the changes of agent’s behavior preference without exogenous influence. Combining with the assumption of risk appetite and prospect theory, focusing on analyzing the rules for selecting strategies, we establish a more reliable and comprehensive dynamic mechanism. In particular, our study suggests that diversified trading strategies will help to realize market efficiency.     

Political disagreement in the classroom: testing cultural theory through structured observation

The cultural theory pioneered by Dame Mary Douglas has been tested with a range of research methods, but it has not yet been made subject to a ‘structured observation’. This method has been developed in psychology and management studies, and is especially useful for testing cultural theory’s prediction that fatalistic, hierarchical, egalitarian, and individualistic ways of perceiving and justifying tend to emerge in group debates about pressing social and environmental issues. We present the results of a structured observation of this prediction. Groups of high school students (aged 17–19) were asked for their opinions concerning three to five ‘wicked’ (i.e., highly complex) problems, and to discuss how to resolve them. Each utterance was coded according to the rationalities proposed by cultural theory. The results confirm cultural theory’s hypothesis that all four specific ways of defining, perceiving and resolving a wicked problem emerge when a number of people debate such an issue. We also discuss how Douglas’ cultural theory can be further developed and tested. Finally, we use our study to outline how the method of structured observation can contribute to political culture research in general.     

A customer’s utility measure based on the reliability of multi-state systems

The main focus of this paper is on the development of utility measures for dynamic multi-state systems that have M + 1 discrete states of working efficiency. To develop the utility measures for multi-state systems, we assume that the degradation of the multi-state systems follows a non-homogeneous semi-Markov process together with a backward recurrence time process and that the system can directly degrade into any lower state. The measure considers the immediate utility derived from the state of the system occupancy and the utility due to the system survival expectations derived from its reliability. Moreover, in order to measure the customer’s cumulative utility, the discounted non-homogeneous continuous time semi-Markov process with rewards is implemented. In such a way, the higher order moments of the reward process can be evaluated and then, in particular, the expectation and the standard deviation of the consumer’s accumulated discounted utility. These statistic indices are useful both to the industry in order to compare different system designs offered by the market and to the market itself, in order to know the customer’s utility deriving from the goods she/he consumes. Finally, a numerical example shows the possibility of implementing the model in real-life problems.     

Selezione degli investimenti e costo del denaro

Alcuni Autori ritengono che non abbia senso il costo del denaro, in uno schema lineare in cui si può ripartire il proprio denaro in tutte e sole le operazioni che determinano il tasso di sconto. La conclusione di tali Autori appare azzardata: infatti il loro risultato discende da una ipotesi estranea al modello lineare. In questo lavoro io interpreto lo stesso modello, mostro che in esso ha senso il costo del denaro e propongo delle impostazioni alternative.

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An interesting economic problem consist in the search of the optimal allocation of one’s monetary resources in different financial transactions. We often consider as “optimal” the allocation which makes the sum of the actual values of investiments the highest possible, within the limits of all feasible operations. These values are reckoned according to the discount rates established by the financial market. This type of abstraction can be acceptable when we can split our capital into a number of operations that are on the whole negligible, if compared with the movement of the market. In case of a considerable turn over that may therefore affect the cost of money, it follows that we can’t determine an appropriate discount rate before establishing the distribution policy; on the other hand we cannot determine the distribution policy before defining the discount rate. As a border-line case we have that of an “enclosed” economy, where funds can be rationed into all and only those operations which determine the cost of capital. That is the case of “pure capital rationing”. To solve the problem of reckoning the cost of capital under pure capital rationing, some Authors have formulated the two dual linear programs (1) and (2) and have deduced that f is the vector of market prices if and only if the optimal dual solution is equal to f. As that happens if and only if f=0, Burton and Damon [2] consider their “main result a rigorous proof that there does not exist a meaningful solution for the pure capital rationing problem” and conclude “that if there exist a solution to the problem it is not to be found by the traditional linear programming formulations”. On the contrary I demonstrate that f=0 is the only possible capital cost because of the hypotesis =f, which is not related to the linear pattern and is not acceptable from an economic-financial point of view. Then I demonstrate that the market prices are all and only those based on which the actual values of the operations considered are 0. Nor was it right to expect more sophisticated conclusions of such an elementary scheme. Finally I express an alternative linear formulation, where the dual optimal solutions are exactly the market prices.

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Lavoro effettuato nell’ambito del G.N.A.F.A. del C.N.R.     

Multi-period rent-seeking contests with carryover: Theory and experimental evidence

This paper develops and experimentally tests a model in which a players effort affects the probability of winning a contest in both the current and future periods. Theory predicts that rent-seeking effort will be shifted forward from later to earlier periods, with no change in overall rent-seeking expenditures relative to the static contest. Experimental results indicate a significant shift forward when carryover is present and that the amount shifted is directly related to the carryover rate. Finally, although experimental expenditures are greater than the equilibrium predictions, overall rent-seeking effort in the carryover contests is lower than in similar static contests.Received: 15 September 2003, Accepted: 15 June 2004 JEL Classification: D72, C91 Correspondence to: JohnCadigan     

The role of executives in hostile takeover attempts

This paper proposes a two-stage game theoretic model where the discretionary power of executives acts as an implicit defense against hostile takeovers. Following managerial enterprise models, this paper analyzes the effects of discretionary power of target’s executives over R&D and advertising expenditures in defeating hostile takeover attempts. It is shown that in vertically differentiated industries, in equilibrium, target’s executives keep low level of R&D and advertising expenditures to make their firm an unattractive target for hostile takeovers. The model reveals that executives are influenced by their self-interest of monetary and non-monetary benefits and this self-interest makes the industry more differentiated.     

Estimating sensitive proportions from Warner’s randomized responses in alternative ways restricting to only distinct units sampled

Warner’s (J Am Stat Assoc 60:63–69, 1965) pioneering ‘randomized response’ (RR) technique (RRT), useful in unbiasedly estimating the proportion of people bearing a sensitive characteristic, is based exclusively on simple random sampling (SRS) with replacement (WR). Numerous developments that follow from it also use SRSWR and employ in estimation the mean of the RR’s yielded by each person everytime he/she is drawn in the sample. We examine how the accuracy in estimation alters when instead we use the mean of the RR’s from each distinct person sampled and also alternatively if the Horvitz and Thompson’s (HT, J Am Stat Assoc 47:663–685, 1952) method is employed for an SRSWR eliciting only, a single RR from each. Arnab’s (1999) approach of using repeated RR’s from each distinct person sampled is not taken up here to avoid algebraic complexity. Pathak’s (Sánkhya 24:287–302, 1962) results for direct response (DR) from SRSWR are modified with the use of such RR’s. Through simulations we present relative levels in accuracy in estimation by the above three alternative methods.     

Measurement of power,probabilities, and alternative models of man

Starting from Max Weber’s definitions of power we discuss the meaning of his concept Chance and its relationships to the probabilistic notions that play a central role in definitions of indices of measuring voting power. Using Martin Hollis’s distinction between two models of man—plastic and autonomous—we argue that the common measures of voting power when interpreted in terms of probabilities seem to be in better conformity with the model of plastic man than with the model of autonomous man. The paper elaborates on the probability interpretation with applications to the modelling of power measures with a priori unions and to the concept of “real voting power” based on relative frequencies of historical events. Power as potential—which in our view is what Weber very likely meant—remains an elusive concept, but one that should be amenable to game-theoretic analysis.