Entry and Asymmetric Lobbying: Why Governments Pick Losers

25 Pages Posted: 2 Feb 2002 Last revised: 5 Dec 2022

See all articles by Richard E. Baldwin

Richard E. Baldwin

University of Geneva - Graduate Institute of International Studies (HEI); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Frederic Robert-Nicoud

University of Geneva - Department of Political Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2002

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 appropriablity of rents means losers lobby harder. Thus it is not that government policy picks losers, it is that losers pick government policy.

Suggested Citation

Baldwin, Richard E. and Robert-Nicoud, Frederic L., Entry and Asymmetric Lobbying: Why Governments Pick Losers (January 2002). NBER Working Paper No. w8756, Available at SSRN: https://ssrn.com/abstract=299170

Richard E. Baldwin (Contact Author)

University of Geneva - Graduate Institute of International Studies (HEI) ( email )

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Frederic L. Robert-Nicoud

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Centre for Economic Policy Research (CEPR)

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