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Endogenous market regulation in a signaling model of lobby formation

Author

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  • Francisco Candel-Sánchez

    (Universidad de Murcia)

  • Juan Perote-Peña

    (Universidad de Zaragoza)

Abstract

This paper aims at explaining industry protection in a context in which the government cannot observe the state of market demand. We develop an asymmetric information model and use the tools of contract theory in order to understand (1) how the level of industry protection is endogenously determined, and (2) why some industries decide to engage in large lobbying costs to become politically active. Our model offers plausible explanations to phenomena such as the “loser’s paradox”, where weak industries receive the most protection although strong industries are the ones that spend more resources on lobbying activities. The model also allows for an analysis of the influence that lobbying costs have on the decision to organize actively as a lobby.

Suggested Citation

  • Francisco Candel-Sánchez & Juan Perote-Peña, 2018. "Endogenous market regulation in a signaling model of lobby formation," Journal of Economics, Springer, vol. 123(1), pages 23-47, January.
  • Handle: RePEc:kap:jeczfn:v:123:y:2018:i:1:d:10.1007_s00712-017-0547-3
    DOI: 10.1007/s00712-017-0547-3
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    References listed on IDEAS

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    More about this item

    Keywords

    Asymmetric information; Lobby formation; Signaling;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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