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Wednesday, December 4, 2019 at 11:40am to 1:10pm
Uris Hall, 498
In Song Kim - MIT
The Effects of Firms' Lobbying on Resource Misallocation (joint w/Federico Huneeus)
Abstract: We study the causal eﬀect of ﬁrms’ lobbying activities on the misallocation of resources through the distortion of ﬁrm size. To address the endogeneity between ﬁrms’ lobbying expenditure and their size, we propose a new instrument. Speciﬁcally, we measure ﬁrms’ political connections based on the geographic proximity between their headquarter locations and politicians’ districts in the U.S., and trace the value of these networks over time by exploiting politicians’ assignment to congressional committees. We ﬁnd that a 10 percent increase in lobbying expenditure leads to a 3 percent gain in revenue. To investigate the macroeconomic consequences of these eﬀects, we develop a heterogeneous ﬁrm-level model with endogenous lobbying. Using a novel dataset that we construct, we document new stylized facts about lobbying behavior and use them, including the one from the instrument, to estimate the model. Our counterfactual analysis shows that the return to ﬁrms’ lobbying activities amounts to a 22 percent decrease in aggregate productivity in the U.S.