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Information transmission and inefficient lobbying

Rafael Lima () and Humberto Moreira ()

Games and Economic Behavior, 2014, vol. 86, issue C, 282-307

Abstract: In a seminal paper, Grossman and Helpman (1994) introduced a framework to understand how lobbying influences the choice of import/export tariffs. In this paper we extend their analysis and assume that lobbies have private information to analyze the effects of information transmission in a Grossman and Helpman lobby game. Information transmission leads to two agency costs. One refers to the cost of signaling and the other to the cost of screening the lobby's competitiveness. The signaling cost reduces distortions resulting from the screening cost. On the other hand, distortions from the screening cost enhance the signaling cost. The two combined effects generate more distortions in the political game than each effect separately. Tariff protection and lobbies' rents are lower than those found in Grossman and Helpman's truthful equilibrium. Therefore, information transmission may improve welfare through the reduction of rent-seeking activities.

Keywords: Lobby; Asymmetric information; Common agency; Political economy (search for similar items in EconPapers)
JEL-codes: D82 D72 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1016/j.geb.2014.02.010

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Handle: RePEc:eee:gamebe:v:86:y:2014:i:c:p:282-307