Raul V. Fabella

The social cost of rent seeking under countervailing opposition to distortionary transfers

Abstract This paper shows that the entry of opposition to a transfer which raises overall Tullock outlays is welfare-enhancing when the number of rent-seekers is large. The spending of the opposition exceeds the fall in the combined spending of rent-seekers. Opposition when there is a single rent-seeker or an entrenched beneficiary is never welfare-enhancing. The larger the number of aspirants to a transfer, the smaller is the number of consumers required to render the consumer lobby ineffective when free riding is allowed.

The bias in favor of pro-tariff lobbies

Abstract We show that the probability of success of the pro-tariff lobby, defined as a decreasing function of the ratio of consumer loss to producer gain (rent) generated by the tariff, rises with the tariff under very general conditions. This appears as an exception to Beckers view that less distortionary measures tend to be adopted over their more distortionary counterparts. We then provide a micro foundation for our probability definition using the imperfectly discriminating lobbying framework.

The debt-adjusted real exchange rate

Abstract We propose the Debt-Adjusted Real Exchange Rate (DARER) that better reflects the real price of the real dollar than the RER when the economy is financing trade deficits by foreign borrowing. Estimates of DARER for the Philippines show that in episodes of heavy current account deficits, overvaluation of the domestic currency is markedly underestimated by simple RER. DARER performs unambiguously better than RER as a predictor of devaluation in the Philippines and Thailand during the period 1980–1992.

Price uncertainty and trader-farmer linkage

Abstract We show that the Pareto superiority of loan repayment in kind within a tied credit arrangement to a cash-for-cash scheme under uncertain output price depends crucially on the farmer loan demand elasticity and his risk aversion. For the risk-neutral trader, the cash-for-cash scheme is shown to be Pareto dominated by credit tying and the price premium he offers depends on farmer loan demand elasticity.

The Olson Ratio and Indirectly Endogenous Rent

We consider an economy where the rent value depends indirectly on value-adding investment of agents (thus indirectly endogenous) and the win-probability is a function of rent seeking spending. We introduce the Olson ratio, characterize it at symmetric Cournot-Nash equilibrium of a perfectly discriminating contest and relate it to the Tullock dissipation rate. We investigate the possibility of black holes.

Consumer Resistance and Monopoly Behavior under Franchise Contestability

The probability of a deregulation under anti-monopoly consumer lobby is generated at the Cournot-Nash equilibrium of a lobbying game which depends on the monopoly rent and the deadweight loss. This probability is increasing and convex in monopoly price. When the deregulation probability constraint is binding, the monopolists price rises with the number of consumers, the competitive price and the given ceiling probability. The social cost of a monopoly under franchise contestability differs from the Posner measure.

A note on the Tullock dissipation rate

Abstract We show, among other results, that the Tullock dissipation rate at a symmetric Nash equilibrium, under risk aversion, approaches the risk-neutral rate as rent size becomes small. Under quadratic risk-averse utility, the risk-neutral rate applies under duopoly regardless of rent size. Under constant absolute risk aversion, the rate rises with rent size.

Monopoly deregulation in the presence of Tullock activities

We give the condition for a welfare improving monopoly deregulation when the decision making process cannot be insulated from Tullock activities and players are risk neutral.

The East Asian Model and the Currency Crisis: Credit Policy and Mundell-Fleming Flows

We attempt a story that accounts for both the East Asian crisis and the East Asian success that preceded it. A two-sector growth model of a small semi-open economy is proposed, which reflects most of the features of the so-called East Asian model: a pegged exchange rate, a regulated capital account and a developmental state wielding tight monetary and credit policy (including credit rationing) to allocate resources towards maximizing export growth and capital accumulation. This means capital starvation for most of the non-tradable sector. Singular success and the end of the Cold War induced political and economic liberalizations in the 1990s which raised real wages and threatened growth. The deregulation of Mundell-Fleming flows appearing as the least politically costly response to changing comparative advantage induced easy money and endogenized credit allocation which promptly financed asset price imbalances in favour of non-tradables. The latter dictated the allocation of borrowed resources that made the financial crisis inevitable. We argue that the currency crisis presents East Asia with an opportunity a la Olson upheaval to return to its roots, a path that Taiwan has taken and one which the US Treasury and the International Monetary Fund will have none of. Copyright 1999 by Blackwell Publishers Ltd and The Victoria University of Manchester

Induced global risk preference

Abstract Risk preference may be induced by scale economies unrelated to taste structure. For an important set of functions exhibiting scale economies, we give (a) the necessary condition for global risk preference induction, and (b) sufficient conditions that preserve risk aversion.