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The politics of growth: Can lobbying raise growth and welfare?
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This paper aims at analyzing the effects of lobbying over economic growth and primarily welfare. We model explicitly the interaction between policy-makers and firms in a setup where the latter undertakes political contributions to the former in exchange for more restrictive market regulations which induce exit and enhance the profitability of the market. In a sectorial equilibrium, despite stimulating growth, lobbying restricts the market structure and reduces welfare when compared to the free-entry outcome. However, once general equilibrium considerations are taken into account, we find that lobbying may improve welfare over a welfare maximizing free-entry equilibrium, by means of an expansion in aggregate demand. This introduces a new paradigm in the literature about the effects of lobbying over economic performance.
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Lobbying Market structure R&D investment Growth Welfare