Rent dissipation in difference-form contests

Abstract

We consider rent-seeking contests where the impact function, which measures how much impact effort has, takes an exponential form. The resulting contest success function (CSF) is a difference-form CSF and the contest is a difference-form contest. Rent dissipation measures the rent lost due to rent-seeking. Cost functions in our difference-form contest are also exponential. We establish the equivalence between such difference-form contests and Tullock contests. We then solve finite-player symmetric difference-form contests in closed form. But if there are asymmetries, the contest cannot be solved. We, therefore, approximate an asymmetric difference-form contest with a large population contest, which can be solved. Rent dissipation in the large population contest is the ratio of the elasticity of the impact function to that of the cost function. Hence, this ratio also approximates rent dissipation in a finite-player contest.