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10.7 The Lobbying Problem in a Democracy

Learning Objective

  1. Recognize some of the problems and pitfalls of policy choice in a representative democracy.

There is a real problem with the lobbying process in democratic societies. Even though lobbying is a legitimate process of information transfer between constituents and government decision makers, it also produces some obvious disparities. Whenever policy actions generate concentrated benefits and dispersed costs, the incentives and abilities to lobby are significantly different across groups. Potential beneficiaries can often use the advantage of small group size and large potential windfalls to wield disproportionate influence on decision makers. Potential losers, whose numbers are large and whose expected costs per person are quite small, have almost no ability to lobby the government effectively. Thus, in a democratic society in which lobbying can influence decisions, decisions are likely to be biased in the favor of those policies that generate concentrated benefits and dispersed losses.

Unfortunately, and perhaps coincidentally, most policy actions taken produce concentrated benefits and dispersed losses. In the case of trade policies, most protectionist actions will cause concentrated benefits to accrue to firms, whereas losses will be dispersed among millions of consumers. This means that protectionist policies are more likely to win political support, especially when lobbying can directly affect legislated actions. Protectionism can easily occur even though the sum total effects of the policy may be negative.

In many countries, a protectionist tendency is reflected in the type of trade policy procedures that are available by law. Escape clause, antisubsidy, and antidumping policies are examples of laws designed to protect firms and industries in particular situations. In evaluating these types of petitions in the United States, there is no requirement that effects on consumers be considered in reaching a decision. Clearly, these laws are designed to protect the concentrated interests of producing firms. It would not be surprising, and indeed it seems likely, that the concentrated interests of businesses affected the ways in which the laws were originally written. The absence of a consumer lobby would also explain why consumer effects are never considered in these actions.

Key Takeaway

  • Democratic governments are more likely to choose policies that generate concentrated benefits and dispersed losses, regardless of whether the sum total effects are positive or negative.

Exercises

  1. Suppose a small country implements a tariff on chicken imports. In the table below indicate whether each group is a winner or loser and whether the effects on that group are concentrated or dispersed.

    Table 10.2 Political Economy Effects of a Tariff

    Name of Group Winners or Losers Concentrated or Dispersed
    Chicken Producers
    Chicken Consumers
    Taxpayers or Recipients of Government Benefits
  2. Suppose a small country implements an export subsidy on soybeans. In the table below indicate whether each group is a winner or loser and whether the effects on that group are concentrated or dispersed.

    Table 10.3 Political Economy Effects of an Export Subsidy

    Name of Group Winners or Losers Concentrated or Dispersed
    Soybean Producers
    Soybean Consumers
    Taxpayers or Recipients of Government Benefits