Firm characteristics and influence on government rule-making: Theory and evidence

Abstract

An adversarial game is used to model a firm's intrinsic and exerted influence over a regulator. Data from the World Business Environment Survey provide strong evidence in support of model hypotheses across a wide range of government agents, countries, and regulatory areas. Of particular relevance to public debate, the theory and econometric analysis show that large firms are more likely to be influential and to benefit from subsidies and low tax constraints. However, large firms are also likely to face greater regulatory constraint from environmental and safety rules.