Project B10:

Empirical analysis of the economics of lobbying in European policy reforms

 

Coordinator:

Prof. Ulrich J. Wagner, PhD.

 

 Researchers:

Dr. Wolfgang Habla

  Duration:01.01.2018 - 31.12.2021


Summary

Recent years have seen an increase in the frequency of political reforms that are designed and implemented by European institutions. It is likely that this trend will continue in the future and spread from genuinely Euro-pean policies, such as common agricultural and environmental policies, to others that have been reformed by the nation states themselves, such as in international trade and finance, labor markets, healthcare and others. Because EU reforms are designed and implemented jointly by the EU Commission, the Parliament and the Council, and not by a single institution, it is difficult for voters to know whom they can hold politically accountable for the impacts of those reforms. The perceived lack of accountability is often accompanied by the view that EU reforms are more susceptible to lobbying than policy reforms at the national level. This rais-es three research questions which will be addressed in this project.
1. How large are the private returns to lobbying in Brussels?
2. How large are the welfare costs induced by lobbying?
3. How does lobbying affect the acceptance of EU wide reforms among the electorate?
The research project sheds light on these questions by empirically analyzing lobbying in the context of re-forming a genuinely European policy, the European Union Emissions Trading Scheme (EU ETS). The EU ETS is a system of tradeable pollution permits for carbon dioxide (CO2). It covers stationary emitters of CO2, such as industrial plants and power plants, which account for roughly half of total emissions in Europe.
Since it was launched in 2005, the EU ETS has been reformed several times, and plenty of proposals for further reform are on the table. Political support from regulated firms was initially secured by offering them generous hand-outs in the form of free emissions permits.
1 In more recent years, the EU Commission has stopped free permit allocation to the electricity sector, but it continues to give free permits to manufacturing industries deemed at risk of losing competitiveness compared to unregulated competitors outside Europe. The assessment of whether or not carbon pricing jeopardizes an industry’s competitiveness is subject to broad participation by stakeholders, and hence, susceptible to lobbyist influence. Whether or not carbon pricing jeopardizes an industry’s competitiveness is contentious, which means that stakeholders have an interest in influencing the assessment of this question. Thus, this subject is well suited to investigations on lobbying in the EU.
The proposed analysis consists of four work packages. Work Package (WP) 1 gathers an extensive dataset on lobbying efforts targeted at influencing EU climate policy, in particular the EU ETS. This dataset will be the first of its kind and constitutes a key project deliverable. WP 2 analyzes the new lobbying data jointly with additional microdata from a range of sources. Notably, it will use firm-level data on free permit allocation to empirically estimate the private returns to lobbying. An estimate of the returns to lobbying is not only crucial for assessing the extent of rent-seeking behavior in the EU ETS but also helps our understanding of the economics of lobbying more generally. WP 3 focuses on the welfare costs of lobbying. We will design and estimate a structural econometric model to quantify by how much lobbying distorts the observed allocation away from the socially optimal permit allocation. Drawing on data from the German Internet Panel (GIP), WP 4 investigates whether such distortions are perceived by the general public and how accurate the public per-ception is when compared to the empirical evidence gathered in WPs 1 to 3.
In sum, the project provides novel and comprehensive evidence on the economic and political repercussions of lobbying in the process of EU reforms. A broader scientific goal of this project is to advance the empirical research on lobbying in Europe, which is far behind its U.S. counterpart (Figueiredo and Richter, 2014). We do so by gathering novel datasets both on lobbying and on its repercussions in public attitudes, by conduct-ing rigorous empirical analysis of a highly policy-relevant case-in-point, and, methodologically, through a combination of microeconomic modeling and survey data using structural estimation techniques.