The possibility that the benefits of lobbying may spill over to other members of society is incorporated into an endogenous growth framework to show that an increase in lobbying may improve welfare and growth even when motivated by self-interest. This case arises when the social benefits of such spillovers dominate the adverse effects of lobbying (e.g., more taxes to pay for policies). In general, however, the decentralized economy grows less than is socially desirable as agents lobby either too much or too little. Rent seeking is a special case of overlobbying where spillovers are absent and, thus, agents always overlobby from a social point of view. Also, the decentralized economy's propensity to lobby increases with the share of public investments in national income.
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Earlier papers on a similar theme were presented at the American Economic Association, Washington, DC, at the University of Illinois-Urbana, Department of Economics, and at the University of Minnesota joint workshop of the Economics Department and the Federal Reserve Bank of Minneapolis. Thanks are extended to Edward Prescott, Timothy Kehoe, Dani Rodrik, Hadi Salehi-Esfahani and Bruce Bender for their useful comments and criticisms. Thanks are also especially due to an anonymous referee for insightful comments on an earlier draft. This research was in part supported by the Economic Research Service (contract no. 0655-5631). The views expressed are solely those of the authors.
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