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Entry and asymmetric lobbying: why governments pick losers

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  • Richard E. Baldwin
  • Frédéric Robert-Nicoud

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.

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File URL: http://eprints.lse.ac.uk/19726/
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Bibliographic Info

Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 19726.

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Length: 30 pages
Date of creation: May 2007
Date of revision:
Handle: RePEc:ehl:lserod:19726

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Web page: http://www.lse.ac.uk/
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Keywords: Lobbying; Sunset Industries; Sunk Costs;

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