Policy Reform and the Free Rider Problem
University of Alabama, Department of Economics, Finance and Legal Studies, Working Paper No. 00-05-01
30 Pages Posted: 18 Sep 2000
Date Written: May 2000
We investigate policy reform in a model in which there are both rent seeking and lobbying activities. These two activities involve similar skills, so a reform which reduces rents will cause a shift into lobbying. Also, lobbying is subject to a free-rider problem, so the marginal return to the industry from lobbying may greatly exceed an individual firm's return to lobbying. Thus, the shift into lobbying which results from a reduction in available rents may lead to a large increase in transfers to the lobbying industry. Under some circumstances, it is possible for a reform which reduces available rents to increase the total of rents plus transfers to the industry.
Keywords: Lobbying, Rent Seeking, Reform, Free-Rider Problem
JEL Classification: D72
Suggested Citation: Suggested Citation