Asymmetry and Corrective Public Policy in Contests

The proposal of an inefficient policyusually stimulates a political strugglebetween the affected interest groups. Theresulting wasteful lobbying activities mayreduce welfare, even if the proposed policyis not approved. In this paper weshow that sufficient asymmetry in payoffsnot only tends to reduce lobbying effortsin standard rent-seeking contests, as iswell known, but it is, in fact, a necessarycondition for the implementation of asuccessful effective correctivetax-transfer policy that complements theproposal of the inefficient policy. Such apolicy induces an efficient equilibriumoutcome which is, in addition, optimal fromthe viewpoint of the players that take partin the public-policy game.