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Lobbying, Growth and Inequality: A Directed Technical Change model with gametheoretic microfoundations

Author

Listed:
  • Pedro Lima

    (University of Coimbra, CeBER and Faculty of Economics)

  • Tiago Neves Sequeira

    (University of Coimbra, CeBER and Faculty of Economics)

  • Óscar Afonso

    (CEF-UP, CEFAGE-UBI and Faculty of Economics of University of Porto)

Abstract

We analyze the effects of lobbying on growth and inequality in a novel directed technical change model, where firms producing different technologies can engage in either demand-seeking lobbying-aimed at increasing demand or rent-seeking lobbying-focused on extracting economic rents. Demand-seeking lobbying promotes economic growth and, when goods are gross substitutes, also increases inequality. In contrast, rent-seeking lobbying has the opposite effects. We also develop a microfounded theoretical game that models generalized lobbying decisions. In this framework, firms from different sectors can either compete or collaborate in their lobbying efforts. The model reveals that lobbying incentives are stronger when fixed costs are low and when shared sources of lobbying efficiency outweigh sector-specific ones. Given our results, it is essential for policy to distinguish between rent-seeking and demand-seeking lobbying practices, and to design targeted incentives for each in order to effectively influence growth and inequality.

Suggested Citation

  • Pedro Lima & Tiago Neves Sequeira & Óscar Afonso, 2025. "Lobbying, Growth and Inequality: A Directed Technical Change model with gametheoretic microfoundations," CeBER Working Papers 2025-01, Centre for Business and Economics Research (CeBER), University of Coimbra.
    • Handle: RePEc:gmf:papers:2025-01
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    More about this item

    Keywords

    Lobbying; economic growth; wage inequality;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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