Inequality, Lobbying, and Resource Allocation

Authors: JOAN  ESTEBAN, DEBRAJ  RAY

Abstract: 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." 

Inequality, Lobbying, and Resource Allocation.PDF