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Lobbying for Subsidies with Heterogeneous Firms

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  • Kammerer, Hannes

Abstract

Recent empirical evidence shows that the few firms that receive subsidies are large, and that large firms take a prominent role in shaping public policy by lobbying. In this paper, I present a theoretical framework that accounts for these empirical facts in a unified way. I study the role of firm heterogeneity in productivity for within-industry lobby formation when receiving subsidies and lobbying is costly. Due to firm heterogeneity, a within-industry conflict between receiving and non-receiving firms arises. This conflict creates lobbying incentives for large firms and delivers novel results. Surprisingly, increasing the barriers to lobby or lower firm heterogeneity amplifies this within-industry conflict such that a smaller lobby can attain a higher subsidy rate. Even if barriers to participate are modest, introducing a subsidy program harms particularly the smallest firms in a market.

Suggested Citation

  • Kammerer, Hannes, 2013. "Lobbying for Subsidies with Heterogeneous Firms," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79767, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc13:79767
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    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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