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Abstract
Governments often establish economic policy in response to political
pressure by interest groups. Since these groups' political activities may
alter prices, economies so affected cannot be characterized by perfect
competition. We develop a model of a "lobbying economy" in which consumers'
choice of political activity simultaneously determines relative prices and
income levels. They balance the loss in income due to lobbying payments
against the potential gain in wealth from a favorable government price policy.
This paper proves the existence of an equilibrium in economies of this sort.
We reformulate the economy as a generalized lobbying game and prove the
existence of a non-cooperative equilibrium in the game. This equilibrium is
then shown to be an equilibrium in the economy.