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Abstract:

cover
CEP Discussion Paper
Entry and Asymmetric Lobbying: Why Governments Pick Losers
Richard E. Baldwin and Frédéric Robert-Nicoud
May 2007
Paper No' CEPDP0791:
Full Paper (pdf)

JEL Classification: H32; P16


Tags: lobbying; sunset industries; sunk costs

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.