Incorporating Policymaker Costs and Political Competition into Rent-Seeking Games

Abstract

1. IntroductionRent seeking in politics involves agents who lobby policymakers for potential benefits. In a seminal contribution, Tullock (1980) modeled rent seeking as a lottery game. A major weakness of Tullock's game was that it lacked verisimilitude to actual rent seeking because it omitted politics. The absence of politics meant that the game essentially assumed that there are no costs to the policymakers of supplying rents. But as Tollison (1997) and others have pointed out, these costs are not zero, and the politics surrounding the policy decision influence the pattern of lobbying and the rent-seeking outcome. In this paper we address two aspects of those politics: the costs to policymakers of supplying rents and the variable intensity of political competition among a given number of rent seekers. Including these aspects increases the similarity of the game to actual rent-seeking situations and makes clearer the incentives to rent seekers.Costs to supplying rents arise due to various constraints. Legislators must build coalitions, acquire parliamentary rights, maintain a positive image, and service constituent interests. Policymakers in agencies must follow procedural rules, submit to congressional oversight and budgeting, pass OMB reviews, and so forth. Lower policymaker costs should increase the effectiveness of lobbying, and this should attract greater lobbying efforts among rent seekers.1 Increasing policymaker costs makes lobbying less effective. Indeed, because of these costs policymakers often turn away lobbies empty-handed. In short, policymakers have constraints that affect the policies they design, and this affects lobbying expenditures (Dougan and Snyder 1993). This paper introduces policymaker costs in monetary units, such that they are comparable to the value of the rent and rent-seeking expenditures.Political competition among rent seekers also influences the rent-seeking outcome. Competition traditionally has been modeled by varying the number of rent-seeking agents (actual or potential) or their relative lobbying expenditures (e.g., Posner 1975; Rogerson 1982; Sun and Ng 1999). Competition can vary, however, even among a given number of rent seekers and for a given profile of expenditures. For example, two agents may lobby a policymaker for the same unique and exclusive political good. Then one agent directly opposes the other and only one agent can win the good. Alternatively, the same two agents may lobby a policymaker for two separate political goods. In that case, the agents oppose each other only indirectly. This situation is frequent in politics as rent-seeking agents compete for space on the political agenda, for policymakers' time, and for portions of a particular government budget. In this situation, success by one agent does not necessarily result in failure by the other, but it does lower the probability that the other agent will succeed. Competition is more intense in the first example, even though the examples involve the same number of firms. Industrial organization economists have shown that a single parameter can determine incumbent firms' competition in price and quantity regardless of the number of firms present.2 This paper introduces rent-seeking competition analogously, allowing a parameter to alter the competitiveness of the rent-seeking game among a fixed number of firms.We incorporate monetized policymaker costs and the political competition parameter into the success probabilities of the standard rent-seeking game. The resulting model is a game in which the agents' simultaneous maximization of expected net returns (or profits) determines a Nash equilibrium in their expenditures. Incorporating politics into the standard game makes the game more accurate because equilibrium and comparative statics depend in part on the politics of the rent-seeking contest. More specifically, increasing political competition decreases rent-seeking expenditures unless the value of the rent is sufficiently large relative to policymaker costs; and dissipation rates are lower than in previous research because of policymaker costs. …