Risk Aversion and the Full Costs of Rent-Seeking

Risk aversion is frequently postulated as one of the factors that lead to under‐dissipation of rents. However, the formal analyses which have supported this contention and suggested that the effects can be large have focused solely on the expenditures of contestants, ignoring the associated costs of...

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Bibliographic Details
Published inBulletin of economic research Vol. 51; no. 2; pp. 95 - 109
Main Author Allard, Richard J.
Format Journal Article
LanguageEnglish
Published Oxford, UK and Boston, USA Blackwell Publishers Ltd 01.04.1999
University of Leeds, School of Economic Studies
Blackwell Publishing Ltd
Subjects
Competition
Economic models
Economic rent
Economic theory
Microeconomics
Monopolies
Rent
Rent-seeking
Risk
Risk aversion
Statistical analysis
Studies
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Summary:Risk aversion is frequently postulated as one of the factors that lead to under‐dissipation of rents. However, the formal analyses which have supported this contention and suggested that the effects can be large have focused solely on the expenditures of contestants, ignoring the associated costs of risk. The paper argues that this omission is wrong in principle, and that when corrected the presence of risk aversion in fact leads to substantial increases in the extent of rent dissipation, although an exception is when there is a very strong combination of risk aversion and asymmetry.
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ISSN:0307-3378
1467-8586
DOI:10.1111/1467-8586.00073