—In this paper, we examine the amount of goods provided by the government using common agency models. It has already been proved that the public policy is efficient in the truthful equilibrium. But, this efficiency reflects only welfare of the agent and the principals who make lobbying activities. Therefore, if there is some principal who does not make lobbying activity, the public policy can be inefficient from the viewpoint of the social welfare. In this paper, focusing on this point, we analyze public policy decision. Especially, we prove that the amount of goods provided by the government is greater than that in the efficient allocation if some group does not make lobbying activity. Moreover, we prove that the partial prohibition against lobby enlarges the government size in some cases. In addition, if the groups' valuation for the good increases, then the allocation becomes to be more inefficient, and if the marginal cost decreases, then the allocation also becomes to be more inefficient. Last, based on these results, an interpretation of the success and failure of Japanese industrial policy is presented.
—Common agency, efficiency of public policy, industrial policy in Japan, special interest groups.
Tetsuro Okazaki is with Chiba University of Commerce (e-mail: email@example.com).
Cite:Tetsuro Okazaki, "Special Interest Groups, Public Policy and Social Welfare," Journal of Economics, Business and Management vol. 1, no. 1, pp. 34-38, 2013.