Seminar Paper 98-11 Influence in Decline: Lobbying in Contracting Industries

Recent empirical work suggests that declining industries lobby more successfully for policy concessions than do growing industries. This paper presents a novel and simple explanation for this phenomenon. It is shown that an industry in decline is constrained in its ability to raise revenue through production and therefore has a greater incentive to protect profits by lobbying for more favorable treatment. However, greater lobbying only translates into policy concessions if the lobbying technology satisfies certain conditions. Accordingly, the paper seeks to determine whether the conventional models of government behaviour are consistent with these restrictions. The results suggest that declining industries are most successful at gaining concessions when an incumbent government does not confront an immediate election (as in the political support models). In contrast, where policies are determined in an election context, the outcome is more uncertain and depends on certain critical parameters. The results appear to be broadly consistent with observed behaviour. A substantial body of empirical literature suggests that declining industries are generally more successful at forming lobby groups and securing policy concessions from governments, than are industries in growing sectors of the economy. Theoretically, this finding is somewhat paradoxical. Growing industries with more resources at their disposal, ought to be better placed to lobby effectively and garner favorable treatment. This paper presents a novel and simple explanation for this phenomenon. It is shown that an industry in decline is constrained in its ability to raise revenue through production and therefore has a greater incentive to protect profits by lobbying for more favorable treatment. However, greater lobbying only translates into policy concessions under certain political conditions. It is demonstrated that declining industries are most successful at gaining concessions when an incumbent government does not confront an immediate election. In contrast, where policies are determined in an election context, the outcome is more uncertain and depends on the level of support for the industry in the wider electorate. The results therefore suggest that a temporal pattern of lobbying is likely to be observed over the political cycle. A substantial body of empirical literature suggests that declining industries are generally more successful at forming lobby groups and securing policy concessions from governments, than are industries in growing sectors of the economy.