In this context, what is the "Participation share"? What is its role in equilibrium? How is it theoretically determined? And how is it empirically quantified?
Participation share, according to Bombardinis (2008) research on contribution of an individual firm in its participation in lobbies according to their size and resource allocation to political activity (Bombardini, 2008), is an equity paper that does not specifically confer to any ownership rights of individual share holder rather grants each holder a participation right in the net profit and proceeds from liquidation of assets and also the right to make subscription to more or new shares.
The model suggested by Bombardini insinuates that for a firm to participate in lobbying it presents contribution schedule to the government of money contribution to each level of protection. The participation share of an individual firm is what determines the strength of the lobby and the level of protection of equilibrium that the firm acquires. (Bombardini, 2008). Specifying the equilibrium set of firms that maximise on the returns of a lobby, it ios efficient that only the large firms, forms with larger participation share in a sector, as that of GH model (Bostick, 1981), due to lump sum costs of political participation. Marginal firms are excluded on the basis of increased sector tariff where smaller returns in comparison to participation costs calls for such action on the firm. A large participation share therefore begets a stronger lobby and therefore a higher level of equilibrium protection. (Maters and Keim, 1985).
According to Bombardini, 2008, theoretically, the contributions schedule of a firm for an equilibrium set of firms in lobbying, the participation share is determined as :
th0i=(jLixij)jSixijThe equilibrium domestic price is derived from:
ti01+ti0=thi0-aLa+aL (zi0ei0)Where zi0=xiomio ,the inverse import penetration ration, eio=-miom'iopio,is the price elasticity of the imports and aL=iiLiaij
thi0, the equlibrium share of total outputof a sector that make up a participation share
When a sector is not politically organized, the function Ii takes place for the function thi and therefore empirical equation for participation shares:
ti1+ti=g0+g1Iiziei+g2ziei+Z1i+eiWhere Where i is a sector, tiis the protection measure, eiis the price of elasticity of imports and ziis the inverse of penetration ratio.What is the relation between the participation share and the size distribution?
According to Bombardinis model (Bombardini, 2008), the larger the size of a firm the more like hood of it engaging in participation share. The amount of contribution that each firm makes increases their economic function in maintaining trade equilibrium. Participation shares therefore increase as the average size of firms and also their distribution standard deviation increase.
thisi0 and thimi0In the empirical section, she performs two distinguished analysis: a reduced form analysis and a structural analysis. Can you brifly describe the differences between the two approaches as set up by Bombardini (2008)?
Figure 1.1 reports the results to the reduced form analysis. Consider specification (GB): what is the difference between coefficients 1 and 2?
The first column in the tables depicts that the sectors that are characterised by much higher firm size dispersion than the others, receive a higher level of protection in the equilibrium basically shown as
ti1+ti=g0+g1Iiziei+g2ziei+g3si+g4mi+g5Ii+Z1i+eiThe second column has additional control of variable that may have a significant effect on protection structure across industries. These factors include sector total sells where the difference between data utilised for penetration of imports and that used to calculate firm size dispersion in accounted for and also the Total Added Value in each sector.
(e) How can we conclude, from figures 1.2 and 1.3, that participation is positively correlated with size?
In the figure 1.2, the amount of contribution of each firm increases with increase in its size. Logarithms of sales in the first column show that lager firms make larger contributions and hence receive more participation share. The quadratic specification too in the second column depicts the same effect of size to participation share. Doubling up of size of a firm, though having a small effect, increases the general regression results confirming increase of contributions and hence participation with increase in size. (Bombardini, 2008).
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