Entry and Asymmetric Lobbying: Why Governments Pick Losers

@article{Baldwin2002EntryAA,
  title={Entry and Asymmetric Lobbying: Why Governments Pick Losers},
  author={Richard E. Baldwin and Fr{\'e}d{\'e}ric Robert-Nicoud},
  journal={NBER Working Paper Series},
  year={2002}
}
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… 
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