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Entry and Asymmetric Lobbying: Why Governments Pick Losers

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Author Info
Richard E. Baldwin
Frédéric Robert-Nicoud

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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 industries, 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. JEL: H32, P16. (c) 2007 by the European Economic Association.

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Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 5 (2007)
Issue (Month): 5 (09)
Pages: 1064-1093
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Handle: RePEc:tpr:jeurec:v:5:y:2007:i:5:p:1064-1093

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  3. Bohara, Alok K & Kaempfer, William H, 1991. "A Test of Tariff Endogeneity in the United States," American Economic Review, American Economic Association, vol. 81(4), pages 952-60, September. [Downloadable!] (restricted)
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  5. Brainard, S. Lael & Verdier, Thierry, 1997. "The political economy of declining industries: Senescent industry collapse revisited," Journal of International Economics, Elsevier, vol. 42(1-2), pages 221-237, February. [Downloadable!] (restricted)
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  6. Pinelopi Koujianou Goldberg & Giovanni Maggi, 1999. "Protection for Sale: An Empirical Investigation," American Economic Review, American Economic Association, vol. 89(5), pages 1135-1155, December. [Downloadable!] (restricted)
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  7. Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-55, December. [Downloadable!] (restricted)
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  9. Stephen Coate & Stephen Morris, 1999. "Policy Persistence," American Economic Review, American Economic Association, vol. 89(5), pages 1327-1336, December. [Downloadable!] (restricted)
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  12. Leonardo Felli & Antonio Merlo, 2006. "Endogenous Lobbying," Journal of the European Economic Association, MIT Press, vol. 4(1), pages 180-215, 03. [Downloadable!] (restricted)
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  13. Rodrik, Dani, 1995. "Political economy of trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 28, pages 1457-1494 Elsevier. [Downloadable!] (restricted)
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  23. Anne O. Krueger, 1990. "Asymmetries in Policy Between Exportables and Import-Competing Goods," NBER Working Papers 2904, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Everaert, Greetje M.M., 2004. "The Political Economy of Restructuring and Subsidisation: An International Perspective," BOFIT Discussion Papers 12/2004, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
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  2. Niek Nahuis & Ben Geurts, 2004. "Helping thy neighbour: productivity, welfare and international trade," International Trade 0404008, EconWPA. [Downloadable!]
  3. Yu-Fu Chen & I-Hui Cheng, 2005. "Protection and employment under uncertainty: a real option approach," Applied Economics, Taylor and Francis Journals, vol. 37(2), pages 229-238, February. [Downloadable!] (restricted)
  4. Campos, Nauro F & Giovannoni, Francesco, 2006. "Lobbying, Corruption and Political Influence," CEPR Discussion Papers 5886, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Karacaovali, Baybars, 2006. "Productivity matters for trade policy : theory and evidence," Policy Research Working Paper Series 3925, The World Bank. [Downloadable!]
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  6. Garcia Pires, Armando José, 2006. "Losers, Winners and Prisoner's Dilemma in International Subsidy Wars," CEPR Discussion Papers 5979, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  7. Richard Baldwin, 2006. "Multilateralising Regionalism: Spaghetti Bowls as Building Blocs on the Path to Global Free Trade," NBER Working Papers 12545, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Nuno Limao & Arvind Panagariya, 2004. "Anti-trade Bias in Trade Policy and General Equilibrium," Contributions to Economic Analysis & Policy, Berkeley Electronic Press, vol. 3(1), pages 1278-1278. [Downloadable!] (restricted)
  9. Johannes Hers & Niek Nahuis, 2004. "The Tower Of Babel? The Innovation System Approach Versus Mainstream Economics," Method and Hist of Econ Thought 0403001, EconWPA. [Downloadable!]
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