Reform for Sale: A Common Agency Model with Moral Hazard Frictions

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Perrin Lefebvre (University of Namur) David Martimort (Toulouse School of Economics)

Reform for Sale

A Common Agency Model with Moral Hazard Frictions

Perrin Lefebvre (University of Namur), David Martimort (Toulouse School of Economics)

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English

Cambridge University Press
02 March 2023

Pressure groups & lobbying; Political economy; Agency law

Series: Elements in Law, Economics and Politics

Summary
Details

Lobbying competition is viewed as a delegated common agency game under moral hazard. Several interest groups try to influence a policy-maker who exerts effort to increase the probability that a reform be implemented. With no restriction on the space of contribution schedules, all equilibria perfectly reflect the principals' preferences over alternatives. As a result, lobbying competition reaches efficiency. Unfortunately, such equilibria require that the policy-maker pays an interest group when the latter is hurt by the reform. When payments remain non-negative, inducing effort requires leaving a moral hazard rent to the decision maker. Contributions schedules no longer reflect the principals' preferences, and the unique equilibrium is inefficient. Free-riding across congruent groups arises and the set of groups active at equilibrium is endogenously derived. Allocative efficiency and redistribution of the aggregate surplus are linked altogether and both depend on the set of active principals, as well as on the group size.

By: Perrin Lefebvre (University of Namur), David Martimort (Toulouse School of Economics)
Imprint: Cambridge University Press
Country of Publication: United Kingdom
Dimensions: Height: 229mm, Width: 152mm, Spine: 5mm
Weight: 140g
ISBN: 9781009285582
ISBN 10: 1009285580
Series: Elements in Law, Economics and Politics
Pages: 75
Publication Date: 02 March 2023
Audience: General/trade , ELT Advanced
Format: Paperback
Publisher's Status: Active