Trade associations, lobbying, and endogenous institutions

This article explores whether positive or negative effects of trade associations-private, formal, nonprofit organizations designed to promote the common interests of their members-on the economy prevail.Weconstruct a model that endogenizes association membership of firms and the main functions of associations, which can have positive or negative spillovers on the economy. We show that, all else equal, the incentives of associations to lobby for better property rights are highest when property rights are unprotected. In turn, incentives to seek rents are strongest when property rights are well protected. This suggests that associations can be a valuable private ordering institution when governments are ineffective but recommends caution when governments supply a functioning legal system.