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Lobbying for Subsidies with Heterogeneous Firms

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  • Kammerer, Hannes
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    Abstract

    Recent empirical evidence shows that the few firms that receive subsidies are large, and that large firms take a prominent role in shaping public policy by lobbying. In this paper, I present a theoretical framework that accounts for these empirical facts in a unified way. I study the role of firm heterogeneity in productivity for within-industry lobby formation when receiving subsidies and lobbying is costly. Due to firm heterogeneity, a within-industry conflict between receiving and non-receiving firms arises. This conflict creates lobbying incentives for large firms and delivers novel results. Surprisingly, increasing the barriers to lobby or lower firm heterogeneity amplifies this within-industry conflict such that a smaller lobby can attain a higher subsidy rate. Even if barriers to participate are modest, introducing a subsidy program harms particularly the smallest firms in a market. --

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    Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order with number 79767.

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    Date of creation: 2013
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    Handle: RePEc:zbw:vfsc13:79767

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    1. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    2. Gene M. Grossman & Elhanan Helpman, 1992. "Protection For Sale," NBER Working Papers 4149, National Bureau of Economic Research, Inc.
    3. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
    4. Pflüger, Michael & Suedekum, Jens, 2013. "Subsidizing firm entry in open economies," Journal of Public Economics, Elsevier, vol. 97(C), pages 258-271.
    5. Svetlana Demidova & Andrés Rodríguez-Clare, 2007. "Trade Policy under Firm-Level Heterogeneity in a Small Economy," NBER Working Papers 13688, National Bureau of Economic Research, Inc.
    6. Vincent Rebeyrol & Julien Vauday, 2008. "Live or let die : intra-sectoral lobbying on entry," Documents de travail du Centre d'Economie de la Sorbonne bla08036, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    7. Bombardini, Matilde, 2008. "Firm heterogeneity and lobby participation," Journal of International Economics, Elsevier, vol. 75(2), pages 329-348, July.
    8. William R. Kerr & William F. Lincoln & Prachi Mishra, 2011. "The Dynamics of Firm Lobbying," NBER Working Papers 17577, National Bureau of Economic Research, Inc.
    9. Aschhoff, Birgit, 2008. "Who Gets the Money? The Dynamics of R&D Project Subsidies in Germany," ZEW Discussion Papers 08-018, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    10. Jennifer Abel-Koch, 2013. "Endogenous Trade Policy with Heterogeneous Firms," Working Papers 1306, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz, revised 01 Aug 2013.
    11. Emmanuel Duguet, 2004. "Are RαD subsidies a substitute or a complement to privately funded RαD ?. An econometric analysis at the firm level," Revue d'économie politique, Dalloz, vol. 0(2), pages 245-274.
    12. Chen, Hui & Parsley, David & Yang, Ya-wen, 2010. "Corporate Lobbying and Financial Performance," MPRA Paper 21114, University Library of Munich, Germany.
    13. repec:hal:journl:halshs-00282331 is not listed on IDEAS
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