Information transmission and inecient lobbying

In a seminal paper, Grossman and Helpman (1994) introduced a framework to understand how lobbying activities inuence the choice of import/export taris. Although their analysis presumes perfect information, in many situations lobbies have private information regarding the impact of policies available to governments. In this paper we assume that the lobbies have private information in a Grossman and Helpman lobby game and analyze the eects of information transmission within their model. Information transmission leads to two agency costs in the political game. One refers to the cost of signaling the lobby’s competitiveness to the policy maker and the other to the cost of screening the rival lobby’s competitiveness from the policy maker. We show that in the equilibrium of the political game the signaling cost reduces the distortions resulting from the screening cost. On the other hand, distortions from the screening cost enhance the signaling cost. The two combined eects generate more distortions in the political game than each eect separately. Tari protection and lobbies’ rents are lower than those found in Grossman and