Risk aversion in rent-seeking and rent-augmenting games

Abstract

The effects of risk aversion are examined for two types of expenditures in rent-seeking contests: (a) Rent-Seeking Expenditures, which improve the probability that the rent is obtained; and (b) Rent-Augmenting Expenditures, which increase the size of the rent to be awarded. Risk aversion is shown to reduce expenditures of type (b) unambiguously, while having an indeterminate effect on those of type (a). These two contrasting results are shown to derive from the very different effects rent-seeking and rent-augmenting expenditures have on the riskiness of a player's position.