We analyze an institutionalized rent-seeking game in which groups can endogenously choose the prize at stake, e.g. a common-pool resource. In the rst stage, groups determine how much of the resource to protect and equally share. In the second stage, the unprotected fraction is com- peted for in a rent-seeking game. We consider two institutions varying in the extent by which subjects participate: majority voting (i.e. unre- strained participation where all group members participate in the pro- tection stage) and dictatorial rule (i.e. limited participation where only one member decides in the protection stage). When subjects’ participa- tion rights are without limitation, rent-seeking is signicantly mitigated by protection. This is especially true when the resource at stake is high. Meanwhile, when only one member selects the protection level, groups are sometimes worse o than when protection is exogenously imposed by the experimenter. These dierences in aggregate rent-seeking can be explained by subjects’ behavior in the rst stage. Dictators’ protection preferences reect self-interest, e.g. competitive intentions in rent-seeking. Subjects participating in a majority vote are concerned with group inter- est and are more likely to select stronger protection.
Why my participation matters: rent-seeking with endogenous prize determination
26 June 2014