Entry and Asymmetric Lobbying: Why Governments Pick Losers

Richard Baldwin and Frédéric Robert-Nicoud

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: Governments frequently intervene to support domestic industries, but a surprising amount ofthis support goes to ailing sectors. We explain this with a lobbying model that allows forentry and sunk costs. Specifically, policy is influenced by pressure groups that incur lobbyingexpenses to create rents. In expanding industries, entry tends to erode such rents, but indeclining industries, sunk costs rule out entry as long as the rents are not too high. Thisasymmetric appropriability of rents means losers lobby harder. Thus it is not that governmentpolicy picks losers, it is that losers pick government policy.

Keywords: Lobbying; Sunset Industries; Sunk Costs (search for similar items in EconPapers)
JEL-codes: H32 P16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cdm and nep-pol
Date: 2007-05
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Related works:
Working Paper: Entry and Asymmetric Lobbying: Why Governments Pick Losers (2002)
Journal Article: Entry and Asymmetric Lobbying: Why Governments Pick Losers (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:cep:cepdps:dp0791

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