Lobbying, Growth and Inequality: A Directed Technical Change model with gametheoretic microfoundations

Pedro Lima, Tiago Neves Sequeira and Óscar Afonso
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Pedro Lima: University of Coimbra, CeBER and Faculty of Economics
Tiago Neves Sequeira: University of Coimbra, CeBER and Faculty of Economics
Óscar Afonso: CEF-UP, CEFAGE-UBI and Faculty of Economics of University of Porto

No 2025-01, CeBER Working Papers from Centre for Business and Economics Research (CeBER), University of Coimbra

Abstract: We analyze the effects of lobbying on growth and inequality in a novel directed technical change model, where firms producing different technologies can engage in either demand-seeking lobbying-aimed at increasing demand or rent-seeking lobbying-focused on extracting economic rents. Demand-seeking lobbying promotes economic growth and, when goods are gross substitutes, also increases inequality. In contrast, rent-seeking lobbying has the opposite effects. We also develop a microfounded theoretical game that models generalized lobbying decisions. In this framework, firms from different sectors can either compete or collaborate in their lobbying efforts. The model reveals that lobbying incentives are stronger when fixed costs are low and when shared sources of lobbying efficiency outweigh sector-specific ones. Given our results, it is essential for policy to distinguish between rent-seeking and demand-seeking lobbying practices, and to design targeted incentives for each in order to effectively influence growth and inequality.

Keywords: Lobbying; economic growth; wage inequality (search for similar items in EconPapers)
JEL-codes: J31 O30 O41 P16 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2025-04
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