Inefficient Lobbying, Populism and Oligarchy

This paper analyses the efficiency consequences of lobbying in a production economy with imperfect commitment. We first show that the Pareto efficiency result found for truthful equilibria of common agency

games in static exchange economies no longer holds under these more general conditions. We construct a model of pressure groups where the set of efficient truthful common-agency equilibria has measure zero. Equilibria

are generally inefficient as a direct result of the existence of groups with conflicting interests, which allocate real resources to lobbying. If lobbies

representing "the poor " and "the rich " have identical organizational capacities, we show that these equilibria are biased towards the poor, who have a comparative advantage in politics, rather than in production. If

the pressure groups differ in their organizational capacity, both pro-rich (oligarchic) and pro-poor (populist) equilibria may arise, all of which are

inefficient with respect to the constrained optimum.

For more information, contact Antonio Merlo.