Collective rent seeking and division of labor

The article analyzes division of labor within multiple groups engaged in collective rent seeking through time. Each agent seeks membership in one of two subgroups within each group, conveniently labelled a leader-subgroup and a follower-subgroup. The within-group generated payoffs are used as input in the between-group competition for the other groups' payoffs and an external rent. Within-group egalitarian allocation, but not relative-effort allocation, alleviates leadership struggle if the rent is large or the group is moderately more decisive than the other groups. The group employing a more egalitarian sharing rule than the other groups alleviates its leadership struggle more successfully. The Folk theorem is used to show the conditions under which leadership struggle gets intensified or alleviated.     

Governing Interest Groups and Rent Dissipation

In a contest of group‐specific public goods we consider the effect that managing an interest group has on the rent dissipation and the total expected payoffs of the contest. While in the first group there is a central planner determining its members’ expenditure in the contest, in the second group there are two different possibilities: either all the members are governed by a central planner or they are not. We consider both types of contests: an all‐pay auction and a Logit contest success function. We show that while governing an interest group decreases free‐riding, it may as well decrease the rent dissipation; at the same time the expected payoffs of the groups may also decrease.     

Allocation problems among sharing groups

We deal with allocation problems among sharing groups. There are n agents. The agents are divided into several sharing groups. A homogeneous good is allocated among sharing groups rather than among the agents. The good is a private good for sharing groups, and a public good for the members of each sharing group. That is, all of them in the same sharing group can consume it without rivalry. We introduce some allocation rules and axioms. The utilitarian allocation rule and the egalitarian allocation rule are characterized by some axioms.     

Allocation of Prizes in Contests with Size Effects

We examine the allocation of prizes in contests in which the number of contenders affects the prizes and costs. We assume that there are two groups of contenders. The government allocates a prize to the two groups, and the contenders in each group respectively compete for the prize. Examining the prize allocation in such contests, we obtain the following results. The aggregate effort increases in the prize share of the larger group. In contests with size effects through costs, the aggregate resource expended in the contests and the aggregate payoffs are independent of group size distribution if the prize is allocated in proportion to group size. The integration of contests with size effects through prizes can yield higher aggregate effort and payoffs than the decentralized contests.     

Sharing-group allocation problems

We deal with allocation problems among sharing groups. We introduce some allocation rules and axioms. The egalitarian rule is characterized by equal treatment of equal groups, solidarity, and group consistency.     

Decompositions and potentials for normal form games

A basic model of commitment is to convert a two-player game in strategic form to a “leadership game” with the same payoffs, where one player, the leader, commits to a strategy, to which the second player always chooses a best reply. This paper studies such leadership games for games with convex strategy sets. We apply them to mixed extensions of finite games, which we analyze completely, including nongeneric games. The main result is that leadership is advantageous in the sense that, as a set, the leader's payoffs in equilibrium are at least as high as his Nash and correlated equilibrium payoffs in the simultaneous game. We also consider leadership games with three or more players, where most conclusions no longer hold.     

Rent Seeking for Pure Public Goods: Wealth and Group's Size Heterogeneity

We study how between‐group wealth and size asymmetries affect aggregate rent‐seeking efforts when two groups compete for the allocation of a pure public good. Unlike with previous analyses on between‐group asymmetries, we measure the utility cost of rent‐seeking in terms of the loss in private consumption an individual faces when contributing to this activity. Our main result is that fewer between‐group asymmetries do not necessarily imply greater aggregate rent‐seeking efforts. The result is at odds with the commonly held notion that the more homogeneous the contestants in a static rent‐seeking model, the greater the aggregate rent‐seeking efforts.     

Bidding for surplus in network allocation problems

In this paper we study non-cooperative foundations of network allocation rules. We focus on three allocation rules: the Myerson value, the position value and the component-wise egalitarian solution. For any of these three rules we provide a characterization based on component efficiency and some balanced contribution property. Additionally, we present three mechanisms whose equilibrium payoffs are well defined and coincide with the three rules under consideration if the underlying value function is monotonic. Non-monotonic value functions are shown to deal with allocation rules applied to monotonic covers. The mechanisms are inspired by the implementation of the Shapley value by Pérez-Castrillo and Wettstein [Bidding for the surplus: a non-cooperative approach to the Shapley value, J. Econ. Theory 100 (2) (2001) 274-294].     

Poverty,competition, democracy,and ownership: A general equilibrium model with vertical preferences

We consider a general equilibrium model where individuals are simultaneously workers, consumers, and shareholders, with two possible market structures: Monopoly and Duopoly, and two extreme ownership structures: egalitarian and concentrated. Considering three standard poverty indicators, the questions are, whether more competition generates more or less poverty for a given ownership structure; and whether a democratic choice between Monopoly and Duopoly leads to the alternative with less poverty. When the ownership is concentrated, we show that Duopoly generates less poverty than Monopoly and the majority votes for the alternative with less poverty. When the ownership is egalitarian, Duopoly may generate more or less poverty and democratic choice alleviates poverty regarding at least one poverty indicator and worsens poverty regarding at least another one, the three poverty indicators never converging. An empirical study on the effect of competition on poverty supports to some extent our theoretical findings.     

Self-interest and fairness: self-serving choices of justice principles

We introduce non-enforceable property rights over a bargaining surplus in a dictator game with production, where the agent’s effort is differentially rewarded and subsequently determines the size of the surplus. Using experimental data, we elicit individual preferences over the egalitarian, accountability and libertarian principles and provide evidence to support the inability of these justice principles to individually account for the observed behavior. We show that the justice principle that can be used to explain dictators’ choices depends on whether dictators are paid more or less than recipients for their effort. Our findings suggest that dictators do employ justice principles in self-serving ways and choose in each context the justice principle that maximizes their financial payoffs.     

Machiavellian experimentation

This paper proposes the following mechanism whereby polarization of beliefs could eliminate political gridlock instead of intensifying disagreement: the expectation of political payoffs from being proven correct by a policy failure could drive decision makers who do not believe in the new policy to agree to policy experimentation, because they are confident that the experiment will fail, thus increasing their political power. We formalize this mechanism in a collective decision making model in the presence of heterogeneous beliefs in which any decision other than the default option requires unanimity. We show that this consideration of political payoffs can eliminate the inefficiency caused by a unanimous consent requirement when beliefs are polarized, but could also create under-experimentation when two actors hold beliefs that differ only slightly from one another. We further show that this under-experimentation can be reduced when the political payoffs become endogenous. We illustrate the empirical relevance of the mechanism in two examples with historical narratives: we focus on the decision making process of the Chinese leadership during the country’s transition starting in the late 1970s, and we further apply the model to the disagreement within the leadership of the Allied Forces on the Western Front of World War II in the autumn of 1944.     

Exit from Rent‐Seeking Contests

The object of this paper is to investigate the long‐run behaviour of rent‐seekers in a situation where they incur negative expected payoffs due to increasing returns to rent‐seeking expenditures. To this end, we embed the one‐shot rent‐seeking game presented by Tullock (1980) in the war‐of‐attrition framework. In this multi‐period setting, each player not only determines his or her rent‐seeking expenditure but also chooses a mixed strategy on whether to stay in or exit from rent‐seeking competition in each period. JEL Classification Numbers: D72, C72, L12     

Conventional Contracts

A "conventional" contract is a contract that each side of a bargain expects the other side to insist on, because it is standard and customary under the circumstances. We consider a process of convention formation in which agents' expectations evolve through repeated interactions in a large-population setting. Agents choose best replies given their knowledge of the precedents, subject to some inertia and random error in their choice behaviour. Over the long run, this adaptive learning process tends to select contracts that are efficient , and egalitarian in the sense that the payoffs are centrally located on the efficiency frontier of the payoff possibility set. When the payoffs form a convex, comprehensive bargaining set, the process selects the Kalai–Smorodinsky solution.     

Promises in group decision making

We assess in the laboratory the effect of promises on group decision-making. The gift-exchange game provides the testing ground for our experiment. When the game is played between groups, inter-group cooperation and reciprocity represent a condition for increasing total earnings as a measure of social efficiency. Our findings show that promises have positive effect on aggregate payoffs and that effect is reinforced when a group member is randomly selected as proposer to set forth an effort/transfer level that other group members can approve or reject. Promises and proposers elicit social conformity leading groups to exhibit more desirable social behavior.     

Comparing group and individual decision-making in risky environments

This dissertation completes salient group and individual experiments in two environments that differ as to whether or not an evaluative criterion exists to judge subject performance. The first environment is lottery-choice. No such criterion exists in a lottery-choice environment. Subjects base their decisions on their preference for risk. A lottery-choice experiment consists of a menu of paired lottery choices structured so that the crossover point to the high-risk lottery can be used to infer the degree of risk aversion. The results show a significant interaction exists between subject composition and lottery winning-percentage. Groups are more likely than individuals to choose the “safe” lottery in the lowest winning-percentages, but less likely to choose the “safe” lottery in the highest winning-percentages. This effect is also present in the sequenced experiment. Further, the sequenced experiment shows that group discussion results in a significant increase in the group’s risk aversion from the average risk preference of its members. Finally, the sequenced experiment shows making a decision in the group phase has an immediate impact on subsequent individual decisions compared to the subject’s initial decisions. The second environment is resource allocation. A resource allocation experiment consists of subjects making repeated decisions of how to divide an endowment into two assets, one of which the payoff is unknown. An evaluative criterion to the resource allocation problem exists, as there is a specific allocation that maximizes payoffs. However, subjects must learn the solution through search. Experimental results show: 1) group performance in the resource allocation experiment is not significantly different than individuals; 2) the predictions from a local search model are more consistent with group decisions than the predictions from a global search model; and 3) group risk preferences elicited through a separate lottery-choice experiment are not indicative of their performance in the resource allocation experiment. Ph.D. Dissertation, Completed at Indiana University, Bloomington Dissertation Committee: Chair–Professor Arlington W. Williams, Indiana University, Bloomington Assistant Professor Hugh Kelley, Indiana University, Bloomington Associate Professor Susan K. Laury, Georgia State University Professor James M. Walker, Indiana University, Bloomington     

Rent Seeking with Politically Contestable Rights to Tariff‐rate Import Quotas**

This paper analyzes rent seeking for agricultural import quotas and the associated waste of resources when politically contestable licenses are allocated to either or both importers and exporters. In a two‐stage simultaneous contest where firms seek rent for licenses and then bargain over the import/export price, it is shown that (1) rents are not dissipated completely because of uncertainty in allocation of “rights,” (2) the dissipation ratio increases if the country with a more competitive contest increases the probability of establishing licenses, (3) rent seeking may cause the market structure to change, (4) less rent is dissipated in the case of pre‐existing market power, and (5) allocation of multiple licenses decreases rent‐seeking outlays.     

On The Allocative Effects of Rent Seeking

We consider the effects of rent-seeking activities on resource allocation. Before rent-seeking activities take place, there are prior probabilities that an object will be given to one of several agents. The posterior probability depends on prior probabilities and the expenses incurred by all agents. In the case of two agents who equally value the object, prior and posterior probabilities coincide, and thus rent seeking has no effect on resource allocation. If there are two agents with different valuations of the object or we have more than two agents, rent seeking matters and posterior probabilities reflect the valuations of the agents.     

The separability principle in bargaining

Summary. We investigate the implications of the separability principle in the context of bargaining. For two bargaining problems with the same population, suppose that there is a subgroup of agents who receive the same payoffs in both bargaining problems. Moreover, if we imagine the departure of this subgroup with their payoffs, then the remaining agents face the same opportunities in both bargaining problems. The separability principle requires that under these hypotheses, the remaining agents should receive the same payoffs in both bargaining problems. We begin with investigating the logical relations between separability and two other axioms, contraction independence and consistency. Then, we establish characterizations of the Nash and egalitarian solutions on the basis of separability. Received: 12 August 2002, Revised: 22 March 2004, JEL Classification Numbers: C71, C78.Youngsub Chun: This work was supported by the Brain Korea 21 Project in 2003. I am grateful to William Thomson, a referee, and an associate editor for their valuable comments.     

Leading by example with and without exclusion power in voluntary contribution experiments

We examine the effects of leading by example in voluntary contribution experiments. Leadership is implemented by letting one group member contribute to the public good before followers do. Such leadership increases contributions in comparison to the standard voluntary contribution mechanism, especially so when it goes along with authority in the form of granting the leader exclusion power. Whether leadership is fixed or rotating among group members has no significant influence on contributions. Only a minority of groups succeeds in endogenously installing a leader, even though groups with leaders are much more efficient than groups without a leader.     

Mechanism Design with Interdependent Valuations: Surplus Extraction

If valuations are interdependent and agents observe their own allocation payoffs, then two-stage revelation mechanisms expand the set of implementable decision functions. In a two-stage revelation mechanism agents report twice. In the first stage - before the allocation is decided - they report their private signals. In the second stage - after the allocation has been made, but before final transfers are decided - they report their payoffs from the allocation. Conditions are provided under which an uninformed seller can extract (or virtually extract) the full surplus from a sale to privately informed buyers, in spite of the buyers’ signals being independent random variables. This research was started when I was visiting the Department of Applied Mathematics of the University of Venice, and continued while visiting the European University Institute in Florence. Their financial support is gratefully acknowledged.