Governing interest groups and rent dissipation

Abstract

In a contest group - specific public goods we consider the effect that managing an interest group has on the rent dissipation and the total expected payoffs of the contest. While in the first group, there is a central planner determining its members' expenditure in the contest, in the second group there are two different possibilities: either all the members are governed by a central planner or they aren't. We consider both types of contests: an all pay auction and a Logit contest success function. We show that while governing an interest group decreases free-riding, it may as well decrease the rent dissipation; at the same time the expected payoffs from the groups may also decrease.