Entry and Asymmetric Lobbying: Why Governments Pick Losers

32 Pages Posted: 28 Jul 2006

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: May 2006

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

Keywords: Lobbying, sunk costs, sunset industries

JEL Classification: H32, P16

Suggested Citation

Baldwin, Richard E. and Robert-Nicoud, Frederic L., Entry and Asymmetric Lobbying: Why Governments Pick Losers (May 2006). CEPR Discussion Paper No. 5671, Available at SSRN: https://ssrn.com/abstract=921110

Richard E. Baldwin (Contact Author)

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

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HOME PAGE: http://www.hei.unige.ch/~baldwin/

Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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Frederic L. Robert-Nicoud

University of Geneva - Department of Political Economics ( email )

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Geneva 4, CH-1211
Switzerland
+41 22 379 8272 (Phone)
+41 22 379 8293 (Fax)

HOME PAGE: http://www.unige.ch/ses/ecopo/staff/robert/home.html

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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