This study investigates the effects of lobbying and institutions on the direction of technological change in a two-sector overlapping generations model. Simulation results suggest that in an environment with unbiased institutions producers' rent-seeking activities direct the economy towards a labor-augmenting path, contradicting with the capital-augmenting optimal path. On the contrary, rent-seeking activities within a capital-favoring institutional structure lead to a path along which capital is augmented the most. This result suggests that governmental inefficiencies can, partially, be corrected by appropriate institutional arrangements.