Lobbying for Subsidies with Heterogeneous Firms

Hannes Kammerer

VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order from Verein für Socialpolitik / German Economic Association

Abstract: Recent empirical evidence shows that the few firms that receive subsidies are large, and that large firms take a prominent role in shaping public policy by lobbying. In this paper, I present a theoretical framework that accounts for these empirical facts in a unified way. I study the role of firm heterogeneity in productivity for within-industry lobby formation when receiving subsidies and lobbying is costly. Due to firm heterogeneity, a within-industry conflict between receiving and non-receiving firms arises. This conflict creates lobbying incentives for large firms and delivers novel results. Surprisingly, increasing the barriers to lobby or lower firm heterogeneity amplifies this within-industry conflict such that a smaller lobby can attain a higher subsidy rate. Even if barriers to participate are modest, introducing a subsidy program harms particularly the smallest firms in a market.

JEL-codes: D72 H25 L11 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-bec
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc13:79767

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