Vecon Lab Rent Seeking Experiment: Introduction

This is a contest or "lobbying game," in which each player chooses a lobbying "effort" that represents real resources used in an attempt to obtain a prize (e.g. a broadcasting license). The prize value is a specified dollar value, and the probability of obtaining the prize is equal to one's lobbying effort as a proportion of the total effort for the group as a whole, as originally specified by Tullock. Rent seeking activity entails real resource costs that dissipate the amount of value transferred to the recipient of the prize. A reduction in lobbying costs will typically increase the amount of lobbying effort, which is the basis for the default class setup. The experiment can be used to motivate a discussion of the choice between non-market allocations and market allocations like auctions. In advanced classes, the efforts can be compared with Nash/Cournot predictions.

For a hand-run setup done with playing cards, and associated suggestions for classroom discussion, see Goeree and Holt (1999) "Rent Seeking and the Inefficiency of Non-Market Allocations," JEP.
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Vecon Lab - October 21, 2014