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Economic Rent Seeking and Social Cost

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Questions and Answers

What did Posner (1975) describe in his rent-seeking contest model?

A scenario where bidders had to pay a fixed fee to enter a contest with no chance of winning

A bidding war where all participants were guaranteed to win regardless of investment

A constant-cost game where the probability of winning was proportional to investment (correct)

A variable-cost game where the probability of winning was inversely proportional to investment

In the context of rent seeking, what did Posner assume about the bidders in his model?

They were risk-seeking

They were risk-neutral (correct)

They were risk-averse

Their risk preference was not considered in the model

What is a key characteristic of rent-seeking costs according to the text?

Rent-seeking costs are solely caused by government interventions

Rent-seeking costs always result in increased output and utility

Rent-seeking costs are negligible and do not impact economic outcomes

Rent-seeking costs generally do not arise in private, competitive processes (correct)

In the context of rent-seeking contests, what does 'exact dissipation' refer to?

All available rents being exactly dissipated among the bidders Signup and view all the answers

What was the main hypothesis presented by Posner in his rent-seeking contest model?

The probability of winning was proportional to the investment made by the bidders Signup and view all the answers

What type of bidders did Posner assume in his model?

Risk-neutral bidders Signup and view all the answers

What was the value of the available rents in Posner's rent-seeking contest model?

$100,000 Signup and view all the answers

'Exact dissipation' in rent-seeking contests implies that:

All available rents are fully utilized by the bidders Signup and view all the answers

According to Posner's model, what is the relationship between investment and probability of winning in a rent-seeking contest?

Proportional Signup and view all the answers

Why did Posner consider risk-neutral bidders in his rent-seeking contest model?

To simplify the analysis and calculations Signup and view all the answers