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Risk aversion in two-period rent-seeking games

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  • Mario Menegatti

    (Università di Parma)

Abstract

This work analyzes a two-period rent-seeking game, with the aim of studying the effect of risk aversion on the optimal choices made by the rent-seekers. We first prove that the equilibrium in two-period rent-seeking games always is unique. The analysis also shows that more risk aversion reduces the investment in the rent-seeking game in a two-period framework without introducing the additional condition of prudence, required in one-period models. Similarly, the introduction of a risky rent, instead of a given rent, implies, in the two-period framework, a reduction in investment under the condition that the rent-seekers are risk averse. Moreover, with risk aversion, larger first-period wealth increases investment in the rent-seeking game and larger second-period wealth reduces it. When both first-period and second-period wealth increase, investment in the rent-seeking game declines if the rent-seeker is risk averse and imprudent. Lastly, when a risky level of second-period wealth is introduced, the rent-seeker increases (reduces) investment in the rent-seeking game if he is risk averse and prudent (imprudent).

Suggested Citation

  • Mario Menegatti, 2021. "Risk aversion in two-period rent-seeking games," Public Choice, Springer, vol. 188(1), pages 269-287, July.
    • Handle: RePEc:kap:pubcho:v:188:y:2021:i:1:d:10.1007_s11127-020-00828-z
    DOI: 10.1007/s11127-020-00828-z
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    More about this item

    Keywords

    Rent-seeking games; Two-period framework; Risk aversion; Risky rent; Changes in wealth;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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