Entry and Asymmetric Lobbying: Why Governments Pick Losers

Richard Baldwin and Frederic Robert-Nicoud

No 5671, CEPR Discussion Papers from Centre for Economic Policy Research

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 appropriability of rents means losers lobby harder. Thus it is not that government policy 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)
Date: 2006-05
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Related works:
Journal Article: Entry and Asymmetric Lobbying: Why Governments Pick Losers (2007)
Working Paper: Entry and Asymmetric Lobbying: Why Governments Pick Losers (2007)
Working Paper: Entry and asymmetric lobbying: why governments pick losers (2007)
Working Paper: Entry and Asymmetric Lobbying: Why Governments Pick Losers (2002)
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