Inequality, Lobbying and Resource Allocation

Peer-reviewed Journal Article

Ray, Debraj; & Esteban, Joan (2006) Inequality, Lobbying and Resource Allocation , American Economic Review 96(1): 257–279.

This paper describes how wealth inequality may distort public resource allocation. A government seeks to allocate limited resources to productive sectors, but sectoral productivity is privately known by agents with vested interests in those sectors. They lobby the government for preferential treatment. The government—even if it honestly seeks to maximize economic efficiency—may be confounded by the possibility that both high wealth and true economic desirability create loud lobbies. Broadly speaking, both poorer economies and unequal economies display greater public misallocation. The paper warns against the conventional wisdom that this is so because such governments are more “corrupt.”

Authors

Joan Esteban

Joan Esteban

Research Professor, Institute for Economic Analysis, Universitat Pompeu Fabra

Debraj Ray

Debraj Ray

Julius Silver Professor of Economics, New York University