Entry And Asymmetric Lobbying: Why Governments Pick Losers

Topics:
Regulations
Tags:
Enterprise Software,
Strategy,
Software,
Rent,
Management,
London School Of Economics,
Industry,
Government,
Entry,
Vertical Industries
Source:
London School of Economics and Political Science

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Overview: Governments frequently intervene to support domestic industries, but a surprising amount of this support goes to ailing sectors. This is explained 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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Format: PDF | Size: 385KB | Date: May 2007 | Pages: 30

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