Rent Seeking and the Regulation of a Natural Resource

This article analyses rent-seeking behaviour among agents who compete for high future shares of a common natural resource. Rent-seeking behaviour occurs when the agents, based on earlier experience, expect that the distribution of the common natural resource in the future will be dependent on the agents' activities in the past. We show that allocation rules that make rent seeking individually rational, normally lead to scale inefficiency, input mix inefficiency, and fewer participants in the industry than lump-sum allocation rules.