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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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File URL: http://www.mitpressjournals.org/doi/pdfplus/10.1162/JEEA.2007.5.5.1064
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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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  7. 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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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)
    Other versions:
  5. Karacaovali, Baybars, 2006. "Productivity matters for trade policy : theory and evidence," Policy Research Working Paper Series 3925, The World Bank. [Downloadable!]
    Other versions:
  6. Campos, Nauro F. & Giovannoni, Francesco, 2008. "Lobbying, Corruption and Other Banes," IZA Discussion Papers 3693, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  7. Masters, William A. & Garcia, Andres F., 2009. "Agricultural Price Distortion and Stabilization: Stylized facts and Hypothesis Tests," Agricultural Distortions Working Paper 50301, World Bank. [Downloadable!]
  8. Martin Gregor & Dalibor Roháč, 2009. "The Optimal State Aid Control: No Control," AUCO Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 3(1), pages 093-113, March. [Downloadable!]
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  9. 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)
  10. Martin, Philippe & Mayer, Thierry & Mayneris, Florian, 2008. "Public Support to Clusters: A Firm Level Study of French “Local Productive Systems”," CEPR Discussion Papers 7102, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  11. Richard Baldwin, 2007. "Multilateralising Regionalism: Sphagetti Bowls as building Blocs on the Path to Global Free Trade," Working Papers id:1231, esocialsciences.com. [Downloadable!]
    Other versions:
  12. repec:bep:eapcon:v:3:y:2004:i:1:p:1278-1278 is not listed on IDEAS
  13. Arnaud Costinot, 2008. "Jobs, Jobs, Jobs: A "New" Perspective on Protectionism," University of California at San Diego, Economics Working Paper Series 2006-05R, Department of Economics, UC San Diego. [Downloadable!]
  14. 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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