The Effect of Number and Size of Interest Groups on Social Rent Dissipation

Note: The following is a description of the paper and not the actual abstract as it appeared in the print journal. Two models are developed to investigate the social welfare implication of the number and size of the lobbying interest groups. The first addresses social rent dissipation of lobbying activities where individuals in each lobbying group ignore the lobbying effect on the size of aggregate output of the economy. It is shown that social rent dissipation is lower the larger is the number of lobbying interest groups (the smaller is the size of each group in the symmetric case). The social rent dissipation is inversely related to the degree of egalitarianism of within-group sharing rule. Model two analyses the case wherein the individual in each group takes into account the effect of lobbying upon the Big Pie (the aggregate output). An interesting inverted-"U" shape relationship between the number of symmetric interest groups and social rent dissipation is demonstrated. The rent dissipation increases with the number of groups when there are very few groups on the one hand and decreases with the group number once the latter exceeds some critical value. Intuitively, when the group number is small, the Big Pie effect in producing the aggregate output is significant and dominate the "group-size" effect in lobbying; when the group number is big, the Big Pie effect is insignificant and therefore is dominated by the "group-size" lobbying effect. Brief discussions are also offered on the policy implication and some possible generalizations