By-Product Lobbying: Was Stigler Right?

U of Alabama Economics, Finance and Legal Studies Working Paper No. 07-8-01

26 Pages Posted: 13 Aug 2007

See all articles by Paul Pecorino

Paul Pecorino

University of Alabama - Department of Economics, Finance and Legal Studies

Date Written: August 2007

Abstract

Olson (1965) argues that some large groups can overcome the free-rider problem through by-product lobbying. The by-product firm sells a private good to potential members of the interest group and finances lobbying with its profits. George Stigler (1974) argued that by-product lobbying firms cannot survive competition with for-profit firms, since this would compete away monopoly rents, leaving the firm unable to lobby. Pecorino (2001) showed that by-product firms can survive in a monopolistically competitive market structure if they use their profits to provide a pure public good. In this paper, I show that by-product lobbying will fail if the public good provided by the firm exhibits even a small degree of rivalry, and the group size is sufficiently large. This suggests that Stigler is right in the circumstances under which by-product lobbying is most relevant.

Keywords: By-Product Lobbying, Free-Rider Problem, Collective Action

JEL Classification: D7, H4

Suggested Citation

Pecorino, Paul, By-Product Lobbying: Was Stigler Right? (August 2007). U of Alabama Economics, Finance and Legal Studies Working Paper No. 07-8-01, Available at SSRN: https://ssrn.com/abstract=1005249 or http://dx.doi.org/10.2139/ssrn.1005249

Paul Pecorino (Contact Author)

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States
205-348-0379 (Phone)
205-348-0590 (Fax)

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