DISSIPATION IN RENT-SEEKING CONTESTS WITHENTRY COSTS

This paper considers the extent to which expenditure by contestants inimperfectly discriminating rent-seeking contests dissipates all or only partof the rent. In particular, we investigate strategic effects, technologicaleffects and asymmetry under an assumption of diminishing returns to scale.Although asymmetry can reduce dissipation when there are few contestants,we show that this effect disappears in the Nash equilibria of large contests.Similarly, strategic effects are diminished if the cost of entry, which restrictsthe number of contestants, is fully taken into account. When individualentry costs fall to zero, the reduction in dissipation arising from technologicalfactors is entirely eliminated in the limit. More generally, the dissipationreducingproperties of all three effects operating simultaneously disappear asindividual entry fees fall to zero provided the aggregate cost of entry is addedto the expenditure of entrants. These conclusions are robust to details of theentry process which can be sequential, in which case the ordering is irrelevantto the limiting results, or simultaneous. Our principal theoretical tool isthe share function which expresses the probability of a player winning thecontest as a function of aggregate expenditure...