Production and Conflict Models Versus Rent-Seeking Models

Abstract

A production and conflict (P&C) model and a rent-seeking (RS) model are compared for one group, two groups and K groups. Adding a new agent enlarges the pie in the P&C model, but causes the fixed size pie to be allocated on one more rent seeker in the RS model. The total production or rent is distributed within and between groups according to the within-group and between-group decisiveness. Productive and fighting efficiencies and group sizes play a role. The collective action problem is more severe for the RS model. As group size increases, the ratio of within-group to between-group fighting increases marginally toward a constant for the P&C model, while it increases convexly for the RS model. Adding an additional agent to each of two groups is more detrimental to the utilities in RS groups than in P&C groups, while adding a second group of agents when there is already one group of agents gives the reverse result. The severe between-group fighting in the P&C model for many groups causes the P&C model to be preferable for few groups, while the RS model is preferable for many groups. Applications are considered to intergroup migration, inside versus outside ownership, divestitures, mergers and acquisitions, multidivisional versus single-tier firms and U form versus M form of economic organization.