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Entry and Asymmetric Lobbying: Why Governments Pick Losers

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Listed:
  • Baldwin, Richard
  • Robert-Nicoud, Frédéric

Abstract

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 appropriability of rents means losers lobby harder. Thus it is not that government policy picks losers, it is that losers pick government policy.

Suggested Citation

  • Baldwin, Richard & Robert-Nicoud, Frédéric, 2006. "Entry and Asymmetric Lobbying: Why Governments Pick Losers," CEPR Discussion Papers 5671, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5671
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    More about this item

    Keywords

    Lobbying; Sunset industries; Sunk costs;
    All these keywords.

    JEL classification:

    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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