RENT DISSIPATION AND THE SOCIAL COST OF PRICE POLICY

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Abstract

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.

Original languageEnglish (US)
Pages (from-to)147-166
Number of pages20
JournalEconomics & Politics
Volume7
Issue number2
DOIs
StatePublished - Jul 1995

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