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Policy making and rent-dissipation: An experimental test

Published online by Cambridge University Press:  14 March 2025

David S. Bullock  and
E. Elisabet Rutström
David S. Bullock
Affiliation:
Department of Agricultural and Consumer Economics, University of Illinois, 326 Mumford Hall, 1301 W. Gregory Drive, Urbana, IL 61801
E. Elisabet Rutström*
Affiliation:
University of Central Florida, College of Business Administration, Department of Economics, P.O. Box 161400, Orlando, FL 32816-1400
*
e-mail: erutstrom@bus.ucf.edu
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Abstract

We present a transfer-seeking model of political economy that links the theory of Becker (1983) with Tullock-type models of politically contestable rents. In our model the size of the transfer is determined endogenously, and over-dissipation of rents is predicted even under conditions of risk-neutrality and perfect rationality. We implement an empirical test of this model by collecting behavioral data in a laboratory experiment. We confirm the existence of behavior that leads to over-dissipation of rents in games with both symmetric and asymmetric political power. To the extent that the transfer-seeking costs are social costs, our findings imply that the total costs of running government might be greatly underestimated if the value of the rent is used as a proxy for the rent-seeking cost. We also confirm the hypotheses that lowering the political power of one player can lead to smaller rent-seeking expenditures and to larger transfers

Keywords

Rent-dissipationRent-seekingTransfersExperimental economics

JEL classification

C91: Laboratory, Individual Behavior D72: Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior
Type
Research Article
Information
Experimental Economics , Volume 10 , Issue 1 , March 2007 , pp. 21 - 36
Copyright
Copyright © 2007 Economic Science Association

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Footnotes

Electronic Supplementary Material Supplementary material is available in the online version of this article at http://dx.doi.org/10.1007/s10683-006-9133-1.

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