Interest group competition over policy outcomes: Dynamics, strategic behavior, and social costs

This paper analyzes a two-period model of interest group competition betwee n two groups to affect the policy outcome. The paper characterizes the subg ame perfect equilibrium and considers the welfare implications of the model . The subgame perfect equilibrium to this game is allocatively efficient if and only if the initial equilibrium is allocatively efficient and interest groups are equally adept at producing political pressure. When rent seekin g is constitutionally protected, the notion of rent-seeking constrained eff iciency is defined as the cooperative solution to the rent-seeking game. It is shown that a rent-seeking constrained efficient equilibrium is attainab le by forcing winners in political competition to fully compensate losers.