Lobbying or Information Provision

Private firms are of growing importance in virtually all transition economies but operate in market and institutional conditions that are still far from competitive and transparent. Although firms have at their disposal various alternative strategies for dealing with their problems, in this paper we focus on two: making unofficial payments to officials and joining business associations. Choices between these strategies may be affected by both firm and industry characteristics and institutional conditions. This paper has two objectives: (1) to compare the effects of two alternative strategies (unofficial payments and association memberships) on various alternative measures of firm performance; and (2) in the case of association membership, to determine which particular functionsâlobbying, information, or otherâhave the greatest effects on several different measures of firm performance. To accomplish these objectives, we make use of the 2002 and 2005 waves of the Business Environment and Enterprise Performance Surveys in twentyeight transition economies. Estimates are obtained from both separate cross sections for 2002 and 2005 and a smaller panel of firms for which the information is available for both years. The estimates show that memberships in business associations, and especially access to their information functions, contribute more to firm performance than unofficial payments and lobbying, despite the fact that much of the literature asserts the opposite and assumes lobbying to be the primary function of business associations, especially in transition economies.