Rent-seeking with scarce talent: A model of preemptive hiring

Abstract

In a standard rent-seeking contest, players optimally employ resources in an attempt to obtain the rent. Typically, it is assumed that these resources may be hired at any desired level at some exogenous per-unit cost. In practice, these resources often consist of scarce, talented individuals. We model a rent-seeking contest with scarce talent and find that talent scarcity leads to preemptive hiring by the player receiving the larger rent. This player hires all available talent and wins the contest with probability 1. This is true even when the difference in rents is small. Copyright Springer Science + Business Media B.V. 2006Rent-seeking, Scarce talent, Labor market, Lobbying, Preemptive hiring,

Is the Coach Paid too Much?: Coaching Salaries and the NCAA Cartel

“…Result 3 is an application of the results on bidding for scarce talent found in Dakhlia and Pecorino (2006). The result that scarce talent signs with the team earning the higher rent is quite general 18 (see Dakhlia and Pecorino, 2006, pp. 484–485).…”

“…We model both the coach and the player as scarce talent, and as such we draw heavily on the results of Dakhlia and Pecorino (2006). In our simple model, there are two teams and only one high talent coach and one high talent player 8 .…”

“…The scare talent framework we employ here (which was developed in Dakhlia and Pecorino, 2006) can be applied in any business setting in which talent is sufficiently scarce such that firm 1 recognizes that part of the value of hiring a talented individual is the denial of her services to its rival, firm 2. For example, if executive talent within an industry is scarce, then part of the benefit of hiring a talented executive is denying her talents to your rival.…”

“…7 7 Given the abundance of lawyers in the United States, the law would not seem like an application where scarce talent would be relevant. However, Dakhlia and Pecorino (2006, p. 476) discuss the case of a corporation which retained a law firm that specialized in takeover activity, purely to deny the firm's services to its rivals. …”

The Champions League and the Coase Theorem

“…The externality imposed by the team with the lower win percentage in equilibrium is bigger precisely because the big team loses more than the small team when its rival wins more. Dakhlia and Pecorino (2004) consider a rent-seeking model where teams not only bid for a quantity of talent but also submit a bid for the wage rate per unit of talent. If each team offers the same wage rate then the Nash equilibrium distribution of talent will be the same as above.…”