Lobbying Is a Biologically Necessary Transaction Cost in a Democracy

Abstract

We explain why lobbying is a biologically necessary transaction cost in a democracy. We use lobbying for trade protection to illustrate because we have controls for other effects by using the Young and Magee [2] general equilibrium international trade model with 2 goods, 2 factors, 2 lobbies and 2 political parties, all maximizing in a game theoretic equilibrium. Our empirical estimates show that protectionist lobbying costs are low: 0.8 of one percent in our advanced countries and 0.2 of one percent for the US. There are political economy explanations for lobbying and corruption: money creates power and power creates money. There are biological explanations for lobbying: humans are carnivores and compete for power like animals in dominance hierarchies. Using both explanations, competitive lobbying is an equilibrium outcome. Our data focus on capital intensive exports compared to import-competing industries in 8 non-EC OECD countries in 1965 and 1986 and factor intensities of production from wage and capital earnings in 3-digit level ISIC data.