PDF, GB, 139 p., 796 Ko - Femise

Let us describe the role of lobbies in the economy. Each individual owns a unit of labour and
at most one unit of specific factor. Some owners of specific factors form a lobby, so there is a
subset L { 1,
2...
n}
∈ of industries organized into lobbies. Let us denote αi the fraction of people
who own specific factor i. The purpose of each lobby i is to provide contributions ( C i ) to the
government in return for influencing the tariff/subsidy in sector i. The summing up of all
indirect utilities of all individuals who belong to lobby i, and rearranging it, we get the
welfare of lobby i equal to: W
i
⎛ n
n ⎞
s
π ⎜
⎟
i + αi
⎜
1+
t jm
j + S j ⎟
. Therefore, the lobby’s objective
⎝ j = 1 j = 1 ⎠
= ∑ ∑
is to maximize: Wi − Ci
. On the other hand the objective of the government is to maximize a
combination of social welfare and contributions received: G = βW ( p)
+ ( 1 − β )∑Ci, where
i∈L
[ 0,
1]
β ∈ captures the weight of welfare in government’s objective.
Assuming that the interaction between lobbies and government takes the form of either “menu
auction” or a Nash bargaining solution, the joint surplus of the society and lobbies can be
written as: Ω = W ( p)
+ ( − β )∑W ∈
j
n
β 1 . Taking into account the definition of ( p)
L
n
j
rewrite Ω as: Ω = + ( 1− β ) α L + ∑[ β + ( 1−
β ) Ii
] π i + ∑[
β + ( 1−
β ) α L ]( timi
+ si
)
β .
i=
1 i=
1
69
n
n
W we can
Where α L ≡ ∑αi represents the share of population that owns some specific factor, and Ii is
i∈L
a dummy that takes value one if i ∈ L and zero otherwise.
The first order condition for Ω maximization over tariffs s
t i (and domestic prices) yields the
following result:
t
s
i
Ii
− αi
xi
= ⋅
β
+ α
− mi
L
1−
β
Where x i is the output of good i. The equation (1) can also be expressed in terms of import
penetration and import elasticity as follows:
(1)