Entry and Asymmetric Lobbying: Why Governments Pick Losers

Richard Baldwin and Frédéric Robert-Nicoud

No 8756, NBER Working Papers from National Bureau of Economic Research, Inc

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

JEL-codes: F1 L5 (search for similar items in EconPapers)
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Date: 2002-01
Note: ITI
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Related works:
Working Paper: Entry and Asymmetric Lobbying: Why Governments Pick Losers (2007)
Journal Article: Entry and Asymmetric Lobbying: Why Governments Pick Losers (2007)
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