Dissipation of contestable rents by small numbers of contenders

The theory of rent seeking with its origins in the observations of Gordon Tullock (1967) or to use Jagdish Bhagwati's (1982) proposed term, the theory of directly unproductive profit-seeking activities is concerned with the potentially adverse effects on resource allocation of incentives to capture and defend artificially-contrived rents and transfers. The scope for social loss proposed by the theory derives from the relation between the value of a contestable prize and the value of the resources attracted into the contest to determine the beneficiary of the prize. Underlying this social loss is a specification of how rational behavior by optimizing agents links the value of the prize sought to the resources expended. It has been traditional to assume competitive behavior in describing the activities of lobbying and influence seeking. Then, if some further conditions are satisfied, l the total value of the resources expended precisely equals the value of the prize sought, so dissipation is complete. 2 Consequently, the social cost associated with contestability of a rent can be inferred from the value of the rent itself, and the detailed and hard-to-comeby information on individual outlays made in the course of the contest becomes unnecessary. By basing their analyses on competitive dissipation, contributors to the rent seeking literature (see the review by Robert Tollison, 1982) have been able to presume that the observed value of a contested rent is an exact measure of the associated social cost of monopoly power or regulation. Similarly, in the trade-theoretic literature where the rights contested are to quota premia or revenues from trade taxes (Krueger, 1974; Bhagwati