Lobbying and Public Good Provision in a Federal Economy: A Dynamic Approach

Abstract: In this paper, we address the issue of dynamic lobbying within a federation that consists of a central government and two regional governments. Regions lobby for more central funds to produce a pure public good such as an improvement in environmen-tal quality. Thus, bene\u85ts of lobbying are public, unlike what is traditionally assumed in the public choice literature. Lobbyists capture a part of the central grant; the other part is used to produce the public good. Allocation of central funds is dictated by two consid-erations: the level of lobbying as well as the e¤ective use of central funds. Welfare to the consumer equals utility from the public good, net of lobbying cost. Unlike the regional gov-ernments, the central government is non strategic. We investigate steady state behaviour as well as welfare implications of di¤erent lobbying protocols: e.g. open and closed loop cooperative and non co-operative behaviour. We show that, for symmetric provinces, the steady state lobbying level and stock of public good are greater than the case when lobbyists are benevolent and cannot capture the rent. Second, introducing a rent-appropriating lob-byist may increase the welfare of the consumers compared to the case where the lobbyist is benevolent. Third, for a wide range of parameter values, non-cooperative lobbying results in higher welfare for the consumer vis-à-vis cooperative lobbying protocols. Predictions of Fershtman and Nitzan (1991, hereafter FN) emerge as limiting cases of our model. JEL Classi\u85cation: H7; R