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Lobbying for Subsidies with Heterogeneous Firms

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  • Kammerer, Hannes
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    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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    File URL: https://www.econstor.eu/bitstream/10419/79767/1/VfS_2013_pid_759.pdf
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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
    Handle: RePEc:zbw:vfsc13:79767
    Contact details of provider: Web page: http://www.socialpolitik.org/
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    1. Bombardini, Matilde, 2008. "Firm heterogeneity and lobby participation," Journal of International Economics, Elsevier, vol. 75(2), pages 329-348, July.
    2. Aschhoff Birgit, 2010. "Who Gets the Money?: The Dynamics of R&D Project Subsidies in Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 230(5), pages 522-546, October.
    3. Demidova, Svetlana & Rodríguez-Clare, Andrés, 2009. "Trade policy under firm-level heterogeneity in a small economy," Journal of International Economics, Elsevier, vol. 78(1), pages 100-112, June.
    4. Vincent Rebeyrol & Julien Vauday, 2008. "Live or let die : intra-sectoral lobbying on entry," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00282331, HAL.
    5. Blanes, J. Vicente & Busom, Isabel, 2004. "Who participates in R&D subsidy programs?: The case of Spanish manufacturing firms," Research Policy, Elsevier, vol. 33(10), pages 1459-1476, December.
    6. Pflüger, Michael & Suedekum, Jens, 2013. "Subsidizing firm entry in open economies," Journal of Public Economics, Elsevier, vol. 97(C), pages 258-271.
    7. William R. Kerr & William F. Lincoln & Prachi Mishra, 2014. "The Dynamics of Firm Lobbying," American Economic Journal: Economic Policy, American Economic Association, vol. 6(4), pages 343-379, November.
    8. 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. 114(2), pages 245-274.
    9. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    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. Chen, Hui & Parsley, David & Yang, Ya-wen, 2010. "Corporate Lobbying and Financial Performance," MPRA Paper 21114, University Library of Munich, Germany.
    12. 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.
    13. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
    14. Tripathi, Micky & Ansolabehere, Stephen & Snyder, James M., 2002. "Are PAC Contributions and Lobbying Linked? New Evidence from the 1995 Lobby Disclosure Act," Business and Politics, Cambridge University Press, vol. 4(02), pages 131-155, August.
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