Lobbying and the power of multinational firms

- We analyze the location decision of a multinational firm dependent on regulation
- We show how lobbying determines the regulation of multinational firms
- We show how the regulation of multinationals differs from national firms
- Lobbying may reverse the welfare comparison between national and multinational firms

Can multinational firms exert more power than national firms by influencing politics through lobbying? To answer this question, we analyze the extent of national environmental regulation when policy is determined in a lobbying game between a government and a firm. We compare the resulting equilibrium regulation levels, outputs and welfare in a game with a multinational firm with those in an otherwise identical game with a national firm. For low transportation costs, output and pollution of a national firm are always as least as high as for a multinational; this changes for high transportation costs and intermediate damage parameters. When there is no lobbying, welfare levels are always higher with multinationals than with national firms. However, the existence of lobbying may reverse this ordering.