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Entry and Asymmetric Lobbying: Why Governments Pick Losers

  • Richard E. Baldwin
  • Frederic 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 industry, 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 appropriablity 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://www.nber.org/papers/w8756.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8756.

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Date of creation: Jan 2002
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Publication status: published as Richard E. Baldwin & Frédéric Robert-Nicoud, 2007. "Entry and Asymmetric Lobbying: Why Governments Pick Losers," Journal of the European Economic Association, MIT Press, vol. 5(5), pages 1064-1093, 09.
Handle: RePEc:nbr:nberwo:8756
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