DO TOO MANY COOKS ALWAYS SPOIL THE STEW - AN EXPERIMENTAL-ANALYSIS OFRENT-SEEKING AND THE ROLE OF A STRATEGIC BUYER

Laboratory methods are used to evaluate the effects of institutional a rrangements and rent-defending activity on rent-seeking auction outcom es. In part, Nash equilibrium predictions are a useful behavioral guid e: As predicted, more rents are dissipated in perfectly-discriminating auctions, where the high-bidder wins, than in lotteries, where relati ve bids determine the chance of winning. Also as predicted, the introd uction of a rent-defending buyer reduces social costs. Nevertheless, t he social costs of rent-seeking consistently exceed predicted levels. Moreover, individual bidding, especially by buyers, deviates markedly from Nash predictions.