Abstract

It is not difficult to find examples of contest in which players compete with one another by expending effort to win a prize. Examples include: (i) disputes between plaintiffs and defendants to win suits; (ii) environmental conflicts between environmental groups and firms over stakes; (iii) the allocation of import quota licenses among competing importers; (iv) inter-firm or international R&D rivalry for a profitable innovation; (v) campaigns between political candidates to win an election; (vi) competition for jobs among job candidates; and (vii) competition among job candidates to win promotion to higher ranks.

In all such instances, an issue of vital concern is the measurement of the social waste associated with the rent seeking process. In four essays, we examine economic efficiency measured by traditional rent dissipation. In particular, we scrutinize regulatory policies which play a major role to determine economic efficiency—the prohibition of mixed contingent-fee contract in litigation, and the uses of reimbursement and punitive damages under federal statues.

This dissertation uses a Nash equilibrium approach. In Chapters 2 and 3, we consider delegation models. In a litigation model, we maintain: (a) the necessary condition for settlement is satisfied unless defense attorneys are paid a mixed contingent-hourly fee; (b) a lower contingent fee in settlement and a higher contingent fee in trial are strategically determined; (c) the plaintiff is better off using the contingent fee instead of the hourly fee; and (d) the contingent fee practice leads to less legal expenditures than the hourly fee practice.

In Chapters 4 and 5, we consider a regulator's role in environmental suits, which influences economic efficiency. Our main results are as follows: (e) the ideal level of punitive damages can be achieved and the total legal expenditures may be reduced on condition that a government takes the punitive damages; (f) regulators would use criteria other than traditional rent dissipation to justify the use of asymmetric reimbursement rule—that is, they would use contest efficiency as the net expected benefit of the contest.