Lobbying for Education in a Two-sector Model

In a two-period model, firms specialized in two different sectors lobby to induce the government to subsidize the type of education complementary to their production. Lobbying is endogenous. We show that, if lobbying is not costly, both sectors will lobby in equilibrium and education policy will induce the same skill composition that would be chosen by the social planner. However, if lobbying is costly, only one sector finds it profitable to offer monetary contribution and direct resources towards the type of education required by its production. Which sector will engage in lobbying depends on relative size, productivity and price in the two sectors.