Wealth constraints, lobbying and the efficiency of public allocation

In Esteban and Ray (1999, Inequality public allocation and development, Mim eo.) we formalize a model in which individuals lobby before the government in order to benefit from some productivity-enhancing government action (inf rastructures, direct subsidies, permissions, in short). The government hone stly tries to allocate these per missions to the agents that will make the best use of them, as revealed by the intensity of their lobbying. If the ma rginal cost of resources varies with wealth, the amount of information tran smitted through lobbying will depend on the degree of inequality. In this p aper., we summarize the main approach and examine the special case of equal wealth. We show that the nature of signaling equilibria is critically affe cted by per-capita wealth. (C) 2000 Elsevier Science B.V. All rights reserv ed. JEL classification: O20; H50; D61; D31; C72.