Immigration Lobbying and Hold‐Up in Investment

ABSTRACT This paper shows how a government sets immigration policy in the presence of entrepreneurs who undertake investment. The government and the entrepreneurs negotiate through lobbying to determine the quota of immigration and the amount of contribution to be paid to the government. In order to mitigate the underinvestment problem due to hold‐up by the entrepreneurs, we show how a government may be willing to tie its hands to an institution that constrains the immigration policies it can set. We identify conditions under which, by tying its hands to such an institution, the government can increase investment in the economy.