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Centralized Decision Making and Informed Lobbying

Rafael Lima (), Humberto Moreira and Thierry Verdier ()
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Humberto Moreira: FGV - Fundacao Getulio Vargas [Rio de Janeiro]

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Abstract: We address the trade-off between centralized and decentralized decision making subject to influence from privately informed lobbies. We focus on informative equilibria with separating differentiable contribution schedules and identify an information transmission effect under centralized structures. Such effect decreases capture and increases welfare when lobbies have "aligned preferences." The opposite effect holds for "polarized preferences." We present two examples of this framework: local public goods and customs union agreements. Finally, we compare the policy outcomes from this political economy perspective to those under a normative mechanism design approach, and extend our analysis to the discussion of pooling equilibria.

Date: 2017-11
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Published in American Economic Journal: Microeconomics, American Economic Association, 2017, 9 (4), pp.324-355. ⟨10.1257/mic.20150253⟩

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DOI: 10.1257/mic.20150253

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