Michael D. Pratt

An experimental investigation of efficient rent-seeking

ConclusionsThe debate about the measurement of the amount of rent dissipated in rent-seeking activities is unable to be answered by observations from the naturally occurring environment. Current theoretical investigations have indicated that a number of factors will affect the amount of rent that can be assumed to be dissipated by rent-seeking. The theory of efficient rent-seeking predicts that the number of rent-seekers, their risk posture, their ability to enter and exit the rent-seeking process, and the manner in which the probability of receiving a rent is determined will affect the amount of rent that is dissipated.To derive some indication of the appropriateness of the predictions from the model, we report a laboratory investigation of rent-seeking activity. The experiments involved two participants and were based on Tullocks analysis of rent-seeking as a lottery. The empirical results indicate that the manner in which the probability is determined does matter in rent-seeking activities. As predicted by the theory, participants in experiments where the exponent in the probability function equalled three dissipated significantly more of a lottery prize than participants in experiments where the exponent equalled one. Therefore, our results lend support to Tullocks argument that social welfare is protected by adopting institutions which lower the exponent if such an adoption can be effected without adverse effects on the efficiency of the selection process.We view our experiments as a first attempt to use laboratory methods to examine rent-seeking. Much work remains. For example, our results indicate average dissipation rates in excess of that predicted by the Cournot-Nash solution when the exponent equals one and below that predicted by either the Cournot-Nash or a precommitment strategy when the exponent equals three. An obvious question is why? Future experimental work should address the extent to which consistent-conjectures outcomes, focal point solutions, and end-game strategies cause the observed divergence from the predicted values. Also, future laboratory experiments are needed to address other issues raised by the theory such as the effects of changing the number of rent-seekers and of allowing rent-seekers to enter and exit the rent-seeking process. These types of experiments will help refine how we estimate the welfare loss created by rent-seeking activities.

Risk aversion and rent-seeking: An extension and some experimental evidence

Summary and concluding remarksTheoretical investigations indicate that the risk attitudes of individuals will effect the amount of rent that can be assumed to be dissipated by rent-seeking activities. Following this line of investigation we extend Hillman and Katzs work to a small numbers case and demonstrate that the degree to which a monopoly rent is dissipated is dependent upon the structure of the risk attitudes of two risk averse individuals.Our earlier laboratory results were evaluated with respect to the risk neutral Cournot-Nash predictions. However, given the uncertainty present in the rent-seeking experiment, our ability to reject these risk neutral predictions may not be, in fact, a failure for the model but a result of risk aversion. In laboratory experiments in which we control for the relative risk attitudes of individual agents, we show that risk aversion matters. The relative risk aversion of individuals affects the level of rent-seeking activity and the extent to which rents are dissipated. In our experiments, the relatively less risk averse individuals dissipated relatively more rent.In future work, it would be instructive to conduct a set of laboratory experiments in which a reliable control for risk neutrality is introduced. This would allow for a more precise test of the risk neutral Cournot-Nash predictions.

Perceptions of banking services in the wake of bank mergers: an empirical study

Presents the results of a telephone survey of 801 consumers concerning the relationship between bank mergers and service quality perceptions. The setting of the study is a US state which has seen much merger activity. The survey results provide evidence of a significant relationship between bank mergers and service quality perceptions that differs based on the demographic characteristics of the respondents. Among these demographic characteristics are gender, ethnicity, education, and income. In addition to the survey results, the article also contains several managerial implications, including a need for complementarity of marketing strategies for both acquired and non‐acquired banks.

Contestability in Real-Time Experimental Flow Markets

This article reports the results from laboratory markets using a new trading institution in which sellers post offers to sell flows of output in real time. We use the new institution to examine the outcomes in natural monopoly experimental markets. No. stable price outcomes were observed in markets contestable by two firms, a finding that is consistent with the contestable markets hypothesis, but in conflict with assertions commonly made by those advancing the theorys role in policy formation. The average efficiency of markets contestable by two firms, while greater than that of monopoly markets protected from entry, was significantly less than that associated with the sustainable equilibrium.

The efficiency of used vehicle markets: the case of technological obsolescence and differential repair records

This paper examines the effect of technological oboslescence, differential maintanance expenditures, and differential fuel efficiencies on the depreciated value of automobiles. Our results support the widely held belief that used vehicle markets are efficient. We show that the significant decline in the depreciated values of used automobiles is predominantly due to age. We also conclude that technological obsolescence causes a once-and-for-all decrease in the depreciated value of used automobiles, that for imported vehicle lines, differential maintanance expenditures affect depreciated value and, that for domestic vehicle lines, differential fuel efficiencies impact depreciated value.

A re-examination of Harrison's experimental test for risk aversion

Abstract This paper examines several aspects of Harrisons (1986) test for the risk attitudes of experimental subjects. We identify specific refinements to Harrisons test that must be adopted in order to establish correctly a subjects risk posture.

Perceptions of Advertising in the Market for Used Vehicles

ABSTRACT The authors, recognising the rise in used-vehicle sales and the dearth of research into used-vehicle promotion, report on a survey among 600 used-vehicle buyers. The results cover the relative importance of advertising, and other factors considered when selecting a used-car seller; factors influencing the make and model of used vehicle; and the reasons for the types of seller chosen. They conclude by indicating guidelines for future studies.

The used‐vehicle superstore: a flawed concept

In the early 1990s, several new entrants extended “category‐killer, big‐box” retailing concepts to the marketing of used vehicles. Despite promise, each entrant has either exited the market or changed its business plan. Based on both primary and secondary data, the authors find that, although the superstore maintains some advantages over traditional used‐vehicle retailers, it has cost disadvantages over the traditional retailer. These findings on both the demand and the supply side of the business explain the observed market failures.

The responsiveness of heavy vehicle registrations to interstate tax differentials

Although the literature is rich on the subject of tax competition between states and regions, little analysis has been published on the responsiveness of interstate highway users to variations in vehicle registration fees and other motor vehicle taxes. While intrastate motor vehicle owners can avoid road user taxes only through tax evasion, firms engaged in interstate commerce have wide discretion in determining where to register their vehicles. Vehicle mobility and high enforcement costs, combined with the institution of registration reciprocity, give interstate motor carriers this discretion. Under registration reciprocity, a vehicle properly registered in one state can legally travel in any other state without having to pay additional registration fees. For an 80,000 pound vehicle, these annual fees presently range f rom

Used vehicles, lemons markets, and Used Car Rules: Some empirical evidence

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