Publication: Endogenous market regulation in a signaling model of lobby formation
Authors
Candel Sánchez, Francisco ; Perote-Peña, Juan
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Publisher
Springer
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DOI
https://doi.org/10.1007/s00712-017-0547-3
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info:eu-repo/semantics/article
Description
Abstract
This paper aims at explaining industry protection in a context in which the
government cannot observe the state of market demand. We develop an asymmetric
information model and use the tools of contract theory in order to understand (i)
how the level of industry protection is endogenously determined, and (ii) why some
industries decide to engage in large lobbying costs to become politically active. Our
model offers plausible explanations to phenomena such as the "loser's paradox",
where weak industries receive the most protection although strong industries are
the ones that spend more resources on lobbying activities. The model also allows
for an analysis of the influence that lobbying costs have on the decision to organize
actively as a lobby.
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Citation
Journal of Economics, 123(1), 2018, 23-47.
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