Rent Seeking with Private Values

In: Public choice, Volume 119, Issue 1-2, p. 161-178

Abstract

We study a rent-seeking contest in which the players' valuations of the prize are private information. We determine a Bayesian equilibrium & give conditions under which the equilibrium exists. Although players are ex ante symmetric, increased possibilities for ex post lopsidedness lead to less aggressive bidding. (Lopsidedness increases as players' values become less positively correlated or as the variation in possible values increases.) We also compare the private-information contest to a related public-information contest in which the realizations of values are common knowledge. The contests are equally efficient & players are indifferent between the two, but risk-averse sellers of the prize are not. 1 Table, 3 Figures, 1 Appendix, 5 References. Adapted from the source document.