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Entry and Asymmetric Lobbying: Why Governments Pick Losers

  • Richard E. Baldwin
  • Frédéric Robert-Nicoud

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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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0791.

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Date of creation: May 2007
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Handle: RePEc:cep:cepdps:dp0791
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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  1. Robert E. Baldwin, 1982. "The Political Economy of Protectionism," NBER Chapters, in: Import Competition and Response, pages 263-292 National Bureau of Economic Research, Inc.
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  11. Pinelopi Koujianou Goldbe & Giovanni Maggi, 1997. "Protection for Sale: An Empirical Investigation," NBER Working Papers 5942, National Bureau of Economic Research, Inc.
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  17. 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.
  18. Stephen Coate & Stephen Morris, . "Policy Persistence," Penn CARESS Working Papers 8a66677895e9fcb3f6d813c0c, Penn Economics Department.
  19. Dixit, Avinash & Grossman, Gene M. & Helpman, Elhanan, 1997. "Common Agency and Coordination: General Theory and Application to Government Policy Making," Scholarly Articles 3450061, Harvard University Department of Economics.
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  29. repec:ags:afjare:141665 is not listed on IDEAS
  30. Ronald Findlay & Stanislaw Wellisz, 1982. "Endogenous Tariffs, the Political Economy of Trade Restrictions, and Welfare," NBER Chapters, in: Import Competition and Response, pages 223-244 National Bureau of Economic Research, Inc.
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  35. Bernheim, B. Douglas & Whinston, Michael D., 1987. "Coalition-Proof Nash Equilibria II. Applications," Journal of Economic Theory, Elsevier, vol. 42(1), pages 13-29, June.
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