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Inequality, Lobbying, and Resource Allocation

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  • Joan Esteban
  • Debraj Ray

Abstract

This paper describes how wealth inequality may distort public resource allocation. A government seeks to allocate limited resources to productive sectors, but sectoral productivity is privately known by agents with vested interests in those sectors. They lobby the government for preferential treatment. The government—even if it honestly seeks to maximize economic efficiency—may be confounded by the possibility that both high wealth and true economic desirability create loud lobbies. Broadly speaking, both poorer economies and unequal economies display greater public misallocation. The paper warns against the conventional wisdom that this is so because such governments are more "corrupt."

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/000282806776157533
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File URL: http://www.aeaweb.org/aer/data/mar06_app_20040037.pdf
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 96 (2006)
Issue (Month): 1 (March)
Pages: 257-279

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Handle: RePEc:aea:aecrev:v:96:y:2006:i:1:p:257-279

Note: DOI: 10.1257/000282806776157533
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References

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Citations

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Cited by:
  1. Yeon-Koo Che & Ian Gale, 2006. "Market Versus Non-Market Assignment of Initial Ownership," Discussion Papers 0607-05, Columbia University, Department of Economics.
  2. Ashish Chaturvedi & Amihai Glazer, 2005. "Competitive Proposals of Policies by Lobbies," Working Papers 050614, University of California-Irvine, Department of Economics.
  3. Sanghamitra Bandyopadhyay & Joan Esteban, 2007. "Redistributive taxation and public expenditures," LSE Research Online Documents on Economics 6537, London School of Economics and Political Science, LSE Library.
  4. Shun-ichiro Bessho & Kimiko Terai, 2008. "Competition for Private Capital and Central Grants: The Case of Japanese Industrial Parks," Working Papers 080909, University of California-Irvine, Department of Economics.
  5. Campante, Filipe R. & Ferreira, Francisco H.G., 2007. "Inefficient lobbying, populism and oligarchy," Journal of Public Economics, Elsevier, vol. 91(5-6), pages 993-1021, June.
  6. Cotton, Christopher, 2007. "Informational Lobbying and Competition for Access," MPRA Paper 1842, University Library of Munich, Germany.
  7. Joan Esteban & Facundo Albornoz & Paolo Vanin, 2009. "Government Information Transparency," UFAE and IAE Working Papers 774.09, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC), revised 10 Feb 2010.
  8. Islam, Asif & López, Ramón, 2011. "Fiscal spending for economic growth in the presence of imperfect markets," CEPR Discussion Papers 8709, C.E.P.R. Discussion Papers.
  9. Duclos, Jean-Yves, 2006. "Equity and Equality," IZA Discussion Papers 2284, Institute for the Study of Labor (IZA).
  10. Theo Eicher & Cecilia García-Peñalosa & Tanguy van Ypersele, 2009. "Education, Corruption and Constitutional Reform," Working Papers UWEC-2007-17-P, University of Washington, Department of Economics.
  11. Kaufmann, Daniel & Vicente, Pedro C., 2005. "Legal Corruption," MPRA Paper 8186, University Library of Munich, Germany.
  12. Maria Cubel, 2010. "Fiscal equalization and political conflict," Working Papers 2010/9, Institut d'Economia de Barcelona (IEB).
  13. Allcott, Hunt & Lederman, Daniel & Lopez, Ramon, 2006. "Political institutions, inequality, and agricultural growth : the public expenditure connection," Policy Research Working Paper Series 3902, The World Bank.
  14. Zhang, Lei, 2008. "Political economy of income distribution dynamics," Journal of Development Economics, Elsevier, vol. 87(1), pages 119-139, August.

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