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

We develop two models in this paper to investigate the social welfare implication of the number and size of interest groups. The first model analyzes the case in which individuals in each group ignore the effect of the lobbying effect on the size of the aggregate output of the economy. It is demonstrated that the social rent dissipation is lower the larger is the number of interest groups (the smaller is the size of each group in the symmetric case) and that there exists an inverse relation between the social rent dissipation and the extent of egalitarianism of within-group rent sharing rules. The second model examine the case wherein the individual in each group takes account of the effect of lobbying activities on the Big Pie (the aggregate output). An interesting inverted- "U" shape relationship between the number of symmetric interest groups and the social rent dissipation is demonstrated. The rent dissipation increases with the group number when there are very few groups and decreases with the group number once the latter exceeds some critical value. Intuitively, when the number of groups is small, the Big Pie effect in producing the aggregate output is significant and dominates 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. The policy implication and some possible generalizations are also briefly discussed