Social Heterogeneity and Wasteful Lobbying

Using a general equilibrium model with endogenous policy, we explore how heterogeneity affects wasteful lobbying by sectoral interest groups. With the help of a simulation approach, we first investigate the impact of information heterogeneity on how lobbies react to a shift from a soft to a strict government budget constraint. Next, we examine how lobbying is influenced by heterogenous perception of the general equilibrium implications of lobbying effort. Finally, we explore the consequences of heterogenous specialization in households’ asset portfolios. We conclude that social heterogeneity in information, perceptions, and portfolio compositions increases incentives to lobby. _ _____________ † Stanford University; †† University of California at Berkeley. Correspondence should be sent to: Marcel Fafchamps, Department of Economics, Stanford, CA 94305. Heterogeneity and Wasteful Lobbying 1. Heterogeneity as a Source of Wasteful Lobbying Thanks to the important contributions of the public choice school, economists and political scientists have long recognized that lobbying activities can be an important source of resource wastage (e.g., Tullock, 1980; Krueger, 1974; Bhagwati, 1982). This happens not only through the policy distortions which lobbying may induce, but also through the wastage of resources which are rationally expended in lobbying activities by special interest groups. In recent years, considerable attention has been given to the role of heterogeneity of incomes or endowments in collective action (e.g., Quiggin, 1993; Johnson and Libecap, 1982). In that literature, heterogeneity has been analyzed in terms of the role which intra-group differences play on the ability of a group to cooperate, generally finding that some forms of heterogeneity are detrimental to successful cooperation (e.g., Baland and Platteau, 1996). Here, we focus instead on aspects of heterogeneity across groups which may induce particular groups to modify their lobbying behavior. Interest in inter-group heterogeneity is in part motivated by widespread political liberalization which has removed the lid on internal conflicts of influence over the state. In highly heterogenous societies, like those in the Balkans, Eastern Europe, and Africa, such conflicts have frequently unleashed intense wars of influence over state policy. One factor that seems to have played an important role in the success of economic and political reforms is the degree of inter-group heterogeneity characterizing the communities that have acquired greater control over local governments in the wake of political liberalization.