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CEP discussion paper

Entry and Asymmetric Lobbying: Why Governments Pick Losers


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.


Richard E. Baldwin and Frédéric Robert-Nicoud

May 2007     Paper Number CEPDP0791

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This CEP discussion paper is published under the centre's Trade programme.