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Abstract
When economic actors are also allowed to become politically active,
perhaps to influence a government price policy, they face decision problems
with essentially simultaneous political and economic features. If, in
addition, two groups struggle to pull the administered price level in
opposite directions, an important strategic component is introduced. On two
levels, then, such situations depart from the competitive economy framework
of Arrow and Debreu. The model of this paper is designed to reconcile the
general equilibrium model with politically active interest groups. This
model is then used to assess the welfare consequences of such lobbying
activity. We find that very often a lobbying program with price distortions
is not the best means for regulating these economies. However, there may be
cases in which no alternative policy could achieve the outcome resulting from
the lobbying program.
Keywords: Political economy, lobbying behavior, rent-seeking, distortionary policy.