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Tullock's Puzzle in Pay‐and‐Play Lobbying
Abstract
We explain Tullock's puzzle of small payments from special interests to policy-makers by the hold-up problem between the two parties. We construct a simple lobbying environment where an uninformed policy-maker is a price-setter who sells access to two opposed and privately informed lobbyists. The key equilibrium property is “the curse of the ex ante favored lobbyist”; the lobbyist proposing a project with the higher expected public value ends up worse off than the lobbyist proposing a project with the lower expected public value. In the absence of contribution caps, the ex ante favored lobbyist strategically devalues her project, and the resulting competitive devaluations destroy private values, revenues, as well as correlated public values. Ex ante, the policy-maker benefits from a binding contribution cap protects the ex ante favored lobbyist, eliminates competitive devaluations, and thus remedies the hold-up problem.
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Using a model of repeated agency, we explain previously unexplained features of the real-world lobbying industry. Lobbying is divided between direct representation by special interests to policymakers, and indirect representation where special interests employ professional intermediaries called commercial lobbyists to lobby policymakers on their behalf. Our analytical structure allows us to explain several trends in lobbying. For example, using the observation that in the U.S. over the last 20 years policymakers have spent an increasing amount of their time fundraising as opposed to legislating, we are able to explain why the share of commercial lobbyist activity in total lobbying has risen dramatically and now constitutes over 60% of the total. The key scarce resource in our analysis is policymakers’ time. They allocate this resource via implicit repeated agency contracts which are used to incent special interests and commercial lobbyists to provide a mix of financial contributions and information on policy proposals. These implicit agency contracts solve both an information problem in the presence of unverifiable policy information and a contracting problem in the absence of legal enforcement. These repeated relationship, that are often described using the pejorative term cronyism in the popular press, may in certain circumstances be welfare improving.
Any symmetric mixed-strategy equilibrium in a Tullock contest with intermediate values of the decisiveness parameter ("2 < R < ∞") has countably infinitely many mass points. All probability weight is concentrated on those mass points, which have the zero bid as their sole point of accumulation. With contestants randomizing over a non-convex set, there is a cost of being "halfhearted," which is absent from both the lottery contest and the all-pay auction. Numerical bid distributions are generally negatively skewed, and exhibit, for some parameter values, a higher probability of ex-post overdissipation than the all-pay auction.
In 1967, Gordon Tullock asked why firms do not spend more on campaign
contributions, despite the large rents that could be generated from political
activities. We suggest in this paper that part of the puzzle could come from the
fact that one important type of political activity has been neglected by the literature
which focuses on campaign contributions or political connections. We call
this neglected activity “asset freezing”: situations in which firms delay lay-offs or
invest in specific technologies to support local politicians’ re-election objectives.
In doing so, firms bear a potentially significant cost as they do not use a portion of
their economic assets in the most efficient or productive way. The purpose of this
paper is to provide a first theoretical exploration of this phenomenon. Building
on the literature on corporate political resources, we argue that a firm’s economic
assets can be evaluated based on their degree of “political freezability,” which
depends on the flexibility of their use and on their value for policy-makers. We
then develop a simple model in which financial contributions and freezing assets
are alternative options for a firm willing to lawfully influence public policy-making,
and derive some of our initial hypotheses more formally.
In this paper we present a model of the behavior of commercial lobbying firms (such as the so-called K-Street lobbyists of Washington, D.C.). In contrast to classical special interest groups, commercial lobbying firms represent a variety of clients and are not directly affected by policy outcomes. They are hired by citizens, or groups of citizens, to advocate on their behalf to policymakers. In our analysis we address two basic questions; why do commercial lobbying firms exist, and what are the implications of their existence for social welfare? We answer the first part of this question by proposing that commercial lobbying firms possess a verification technology that allows them to improve the quality of information concerning the social desirability of policy proposals. This gives policymakers the incentive to allocate their scarce time to lobbying firms. Essentially it is this access to policymakers that lobbying firms sell to their clients. To address the question of social welfare we construct a simple general equilibrium model that includes commercial lobbying firms, and compare the equilibrium obtained under market provision of lobbying services to the first best optimum. We find that the market level of lobbying services can be socially either too large or too small, and characterize when each will be the case.
This landmark theoretical book is about the mechanisms by which special interest groups affect policy in modern democracies. Defining a special interest group as any organization that takes action on behalf of an identifiable group of voters, Gene Grossman and Elhanan Helpman ask: How do special interest groups derive their power and influence? What determines the extent to which they are able to affect policy outcomes? What happens when groups with differing objectives compete for influence? The authors develop important theoretical tools for studying the interactions among voters, interest groups, and politicians. They assume that individuals, groups, and parties act in their own self-interest and that political outcomes can be identified with the game-theoretic concept of an equilibrium. Throughout, they progress from the simple to the more complex. When analyzing campaign giving, for example, they begin with a model of a single interest group and a single, incumbent policy maker. They proceed to add additional interest groups, a legislature with several independent politicians, and electoral competition between rival political parties. The book is organized in three parts. Part I focuses on voting and elections. Part II examines the use of information as a tool for political influence. Part III deals with campaign contributions, which interest groups may use either to influence policy makers' positions and actions or to help preferred candidates to win election.
This paper provides a survey on studies that analyze the macroeconomic effects of intellectual property rights (IPR). The first part of this paper introduces different patent policy instruments and reviews their effects on R&D and economic growth. This part also discusses the distortionary effects and distributional consequences of IPR protection as well as empirical evidence on the effects of patent rights. Then, the second part considers the international aspects of IPR protection. In summary, this paper draws the following conclusions from the literature. Firstly, different patent policy instruments have different effects on R&D and growth. Secondly, there is empirical evidence supporting a positive relationship between IPR protection and innovation, but the evidence is stronger for developed countries than for developing countries. Thirdly, the optimal level of IPR protection should tradeoff the social benefits of enhanced innovation against the social costs of multiple distortions and income inequality. Finally, in an open economy, achieving the globally optimal level of protection requires an international coordination (rather than the harmonization) of IPR protection.
This paper uses newly available data from the 1995 Lobby Disclosure Act to assess the argument that PAC contributions are used to gain access to legislators. First, we find a much stronger connection between lobbying and campaign contributions than previous statistical research has revealed--groups that have both a lobbyist and a PAC account for 70 percent of all interest group expenditures and 86 percent of all PAC contributions. Second, we find that groups that engage in relatively large amounts of lobbying--and therefore presumably have a high demand for access--allocate their campaign contributions differently than groups that do not. Groups that emphasize lobbying pay more attention to members' positions of power inside Congress, and less attention to members' electoral circumstances, than other groups. Groups that emphasize lobbying also appear to be more bipartisan and less ideological than other groups, giving more equally to both parties and more broadly across the ideological spectrum.
The Grossman-Helpman "Protection for Sale" model, concerning the political economy of trade protection, yields clear predictions for the cross-sectional structure of import barriers. Our objective is to check whether the predictions of the Grossman-Helpman model are consistent with the data and, if the model finds support, to estimate its key structural parameters. We find that the pattern of protection in the United States in 1983 is broadly consistent with the predictions of the model. A surprising finding is that the weight of welfare in the government's objective function is many times larger than the weight of contributions.
We develop a model of informational lobbying in which a policymaker must decide which issues to reform, but is uninformed about which issues he would be better off reforming. On each issue there is an informed interest group that always favors the adoption of reform, and which can lobby the policymaker by offering to provide verifiable information about the state of the world for its issue. A key feature of our model is that the policymaker faces time/resource constraints which may restrict both 1) his ability to grant access to and verify the information of all lobbying interest groups and 2) his ability to reform all issues. We show that when the policymaker can reform all issues, the act of lobbying by an interest group signals information only imperfectly. In particular, an interest group may want to lobby the policymaker even when it does not possess favorable information in the hope that the policymaker is unable to verify its information but still takes the act of lobbying as a signal that the state is favorable to reform. We call such lobbying behavior 'overlobbying'. We then show that a restriction on the number of issues on which reforms can be implemented, viz. an agenda constraint, can improve information transmission by eliminating overlobbying. Importantly, we identify circumstances in which an agenda constraint improves the ex ante welfare of the policymaker and of each interest group, leading to a Pareto improvement.
We study a game in which a lobby with verifiable private evidence discloses her evidence to a policy-maker if and only if she agrees to a transfer that is proposed by the policy-maker. This setting is motivated by the literature of pay-and-lobby politics, which finds that politicians schedule informative meetings with lobbyists on the basis of their campaign contributions. We admit both positive transfers (fees) and negative transfers (compensations), which implies not only that the policy-maker can commit to not listen but also that the lobby can commit to not talk. In a binary action space, we solve the game for all timings, prior beliefs, information structures, and valuation parameters. We identify the settings in which the policy-maker strategically discourages the lobby’s participation by announcing an unacceptable transfer. Whether ‘burying one’s head in the sand’ increases or decreases welfare depends on the degree of the policy-maker’s benevolence.
In a departure from previous research, we focus on the dyadic relationship between lobbyists and committee members in the House of Representatives in order to test hypotheses about what factors shape the decisions of individual groups to lobby individual committee members. Our primary assumption is that organized interests seek to expand their supportive coalitions and affect the content and fate of bills referred to committees. In order to accomplish these goals, they give highest priority to lobbying their legislative allies in committee; allies may lobby other members of Congress on a group's behalf and shape legislation to conform with a group's preferences. But organizations with access to a strong resource base can move beyond their allies and work directly to expand support among undecided committee members and legislative opponents. Our empirical analysis provides evidence to support our expectations.
Since the 1960s, interest group scholars have suggested that groups mostly lobby legislators who, prior to lobbying, are expected to support their favored positions. We present theoretical and empirical evidence that, other things being equal, groups also lobby legislators who are predisposed to vote against their favored positions. We find that when groups lobby their ex ante supporters, they do so to counteract the influence of opposition groups. On the basis of our findings, we argue that organized interests play a much more prominent and substantial role in the legislative process than past research indicates.
A debate in the American politics literature on lobbying is over whom interest groups tend to lobby, legislative friends, enemies, or so-called "undecideds" (fence-sitters). I connect that debate to literature on subgovernments and bias in congressional committees in the United States. Conclusions regarding friendly versus confrontational lobbying of congressional committees are misleading without consideration of biases in committee representation. Relying on measures of congressional committee members' ideology and interest group ideology and lobbying behavior, I use bivariate correlation and t-tests to examine behavioral patterns of interest group and committee interactions. There is a correlation between the ideologies of interest groups lobbying committees and the ideologies of those committees, but this stems more from the general agreement among groups and committees in the same issue areas rather than from deliberate choices by groups. If conservative (liberal) groups lobby conservative (liberal) committees, it is because the set of interest groups active in the issue area tend to be conservative (liberal). Furthermore, committees tend to share the same biases as the interest groups surrounding them. What looks like friendly lobbying of committees is actually bias in representation by interest groups and committees.
Data on campaign contributions of PACs (political action committees) in the US does not contain the PACs' issues of concern. Additionally, while recent US lobbying data details the issues of concern for an interest group, it does not detail the Congressional representatives lobbied by the interest group. Expanding the time-frame of earlier work, I confirm that PACs engaging in lobbying and campaign contributions account for the majority of such political money despite representing a small minority of all PACs. I show how this allows the construction of a novel dataset that decomposes representative-specific contributions across issues as well as issue-specific lobbying expenditures across representatives. This decomposition can qualitatively affect results regarding the relationship between political money and Congressional voting behavior on trade policy.
An important and pervasive view of campaign contributions is that they are given to promote access to successful candidates under circumstances when such access would not ordinarily be given. In this story, access is valuable as it offers groups the opportunity to influence legislative decisions through the provision of policy-relevant information. Under complete information regarding donors' policy preferences, I argue that this model predicts a negative relationship between contributions and the extent to which the groups' and the recipient legislators' preferences are similar. However, one of the more robust empirical findings in the literature is that this relationship is positive. Relaxing the informational assumption on donors' preferences, I reexamine the access story with a model in which campaign contributions can act as signals of policy preference and the (informational) value of access to any agent is endogenous.
I Why Is the Rent-Seeking Industry So Small?.- 1 Introduction.- 2 Rents, Ignorance, and Ideology.- 3 The Cost of Rent Seeking: A Metaphysical Problem.- 4 Efficient Rent Seeking, Diseconomies of Scale, Public Goods, and Morality.- II Random Thoughts on Rent Seeking.- 5 Rent Seeking: The Problem of Definition.- 6 Rent Seeking and the Market.- 7 Strategic Behavior, Mixed Strategies, and the Defects of the Nash Equilibrium.- 8 Rent Seeking and Transfers.- 9 Rent Seeking and Tax Reform.- 10 Concluding Thoughts.
I examine the relationship between interest group hard money contributions and legislators' attention to policy analysis in U.S. congressional committees. I argue that groups tend to contribute to members who have a high capacity to develop effective policies and legislation. Consequently, over the long term, contributions create incentives for members of Congress to enhance their analytical capacity for policymaking. Using data from hearings on the Medicare program and latent variable modeling techniques, I demonstrate that members who have a higher latent analytical policymaking capacity tend to attract more contributions and at the same time tend to engage in analytical discourse in committee hearings. In addition, members with higher analytical capacity tend to disengage from discussions of the symbolic aspects of policies that are of interest to constituents. The results help shed new light on debates over campaign finance reform regarding the normative value of hard money contributions.
In the "Protection for Sale" model of Grossman and Helpman (1994), some industries are assumed to be able to overcome the free-rider problem and organize a lobby that represents their group interests while other industries are unable to form a lobby. This dichotomy presents a problem for the many papers that attempt to estimate the model empirically since every industry must be classified as either fully organized or completely unorganized and campaign contributions data do not reveal such a sharp distinction. This paper introduces free-riding into the Grossman-Helpman model in a way that allows industries to be partially organized. The paper distinguishes between cooperative lobbying, in which firms lobby in order to maximize the joint welfare of all firms in the industry, and noncooperative lobbying, in which each firm maximizes its own welfare. A move toward noncooperative lobbying indicates greater free riding on the part of firms. Using data on U.S. trade barriers, we test the model empirically and find evidence of free riding by firms. We show that free riding can help explain the puzzle that previous estimates of the Grossman-Helpman model have found policy makers to be largely welfare maximizing.
This paper studies strategic disclosure between multiple senders and a single receiver. The senders are competing for prizes awarded by the receiver. They decide whether to disclose a piece of information that is both verifiable and equivocal (it can influence the receiver both ways). Then the standard unraveling argument breaks down: if the commonly known probability that her information is favorable is sufficiently high, a single sender never discloses. Competition restores full disclosure only if some of the senders are sufficiently unlikely to have favorable information. When the senders are uncertain about each other's strength, however, all symmetric equilibria approach full disclosure as competition increases.
We study the determinants of the dynamics of firm lobbying behavior using a panel data set covering 1998-2006. Our data exhibit three striking facts: (i) few firms lobby, (ii) lobbying status is strongly associated with firm size, and (iii) lobbying status is highly persistent over time. Estimating a model of a firm’s decision to engage in lobbying, we find significant evidence that up- front costs associated with entering the political process help explain all three facts. We then exploit a natural experiment in the expiration in legislation surrounding the H-1B visa cap for high-skilled immigrant workers to study how these costs affect firms’ responses to policy changes. We find that companies primarily adjusted on the intensive margin: the firms that began to lobby for immigration were those who were sensitive to H-1B policy changes and who were already advocating for other issues, rather than firms that became involved in lobbying anew. For a firm already lobbying, the response is determined by the importance of the issue to the firm’s business rather than the scale of the firm’s prior lobbying efforts. These results support the existence of significant barriers to entry in the lobbying process.
This survey focuses on the efforts, carried out mainly by public choice scholars, to measure the social cost of rent seeking. The concept, introduced by Gordon Tullock in 1967 and coined by Anne Krueger in 1974, is well known and accepted by the profession, but its empirical measurement has fallen behind with respect to its theoretical formulation, an often criticized lack in the literature. Although there are good general surveys, none has specifically focused on reviewing the empirical efforts made to measure the phenomenon. The purpose of this paper is to provide such a survey.
This paper examines the social costs and benefits of special interest group political influence activities. It is commonly recognized that, to the extent that such activities induce legislators to choose policies that favor the interest group at the expense of society at large, they can reduce welfare. It may also be the case, however, that lobbying can convey information held by interest groups to policy-makers. When costless announcements would not be credible, interest groups can signal their private information through costly influence activities. To the extent that this information enables governments to choose better policies, lobbying can enhance welfare. A simple game between a special interest group and a policy-maker that captures this tradeoff between the distortionary costs and the informational benefits of political influence activities is developed. Welfare properties of the equilibria are analyzed, and conditions are derived under which social welfare is greater when lobbying occurs than it would be if lobbying were prohibited. In conclusion, the phenomenon analyzed in this paper is related to Bhagwati's taxonomy of DUP activities. Copyright 1995 Blackwell Publishers Ltd..
This paper develops a model of interest group lobbying based on the central premise that such lobbying is fundamentally an exercise in strategic information transmission. Lobbyists typically possess information that legislators do not and, inter alia, such information is relevant to legislators when it concerns the consequences — either policy or political — of supporting one bill rather than another. However, given that the interests of lobbyists do not necessarily coincide with those of legislators, the extent to which a lobbyist is able to persuade a legislator to act in his or her interest is moot. The paper explores the extent to which lobbyists can influence a legislative decision in such a setting; in particular, we are concerned with the incentives for interest groups to acquire costly information and lobby a legislator when there exist other groups that do not share the same interests. Among the results are that a legislator will on average make better decisions with lobbying than without, and that the more important is an issue to a special interest group, the more likely is the legislator to make the correct full-information decision.
This paper develops a model of political contributions in which a politician can either sell policy favors, or sell access. Access allows interest groups to share hard information with the politician in support of their preferred policy. Here selling access maximizes policy utility, while selling policy favors maximizes total contributions. Imposing a binding contribution limit makes it more likely that the politician sells access, which can improve expected constituent welfare. However, a contribution limit distorts the signals associated with the contributions, which tends to result in worse policy. Alternatively, a tax on political contributions can ensure that the politician sells access without distorting his information. Therefore, from the viewpoint of a representative constituent, a tax on contributions is strictly preferred to a contribution limit or no reform. The politician, however, may prefer regulation in the form of a contribution limit, even when a tax is better for the constituent.
"Wenn eine Lobbygruppe sich bindend auf einen Politikvorschlag festlegen kann, bevor sie in einen Lobbywettkampf mit einer anderen Gruppe tritt, dann hat sie einen Anreiz zu strategischer Zurückhaltung: Kommt sie der anderen Gruppe ein wenig entgegen, so entschärft das den Wettkampf zwischen den Gruppen. Diese Idee ist kürzlich in einer Reihe von Aufsätzen untersucht worden. Ich trage zu dem Thema bei, indem ich einen vollständig diskriminierenden Wettkampf als Modell für den Lobbywettkampf verwende. Es existiert ein teilspielperfektes Gleichgewicht, in dem beide Lobbygruppen dieselbe Politik vorschlagen, und zwar diejenige, die ihre gemeinsame Wohlfahrt maximiert. Dieses Gleichgewicht ist das einzige, das bei wiederholter Elimination dominierter Strategien übrig bleibt. Folglich kämpfen die Gruppen nicht wirklich, und es gibt keine Rentendissipation. Ein Politiker, der versucht, die Lobbyausgaben zu maximieren, würde einen unvollständig diskriminierenden Wettkampf vorziehen." (Autorenreferat) "Lobbyists choose what to lobby for. If they can precommit to certain policy proposals, their choice will have an influence on the behavior of opposing lobbyists. Hence lobbyists have an incentive to moderate their policy proposals in order to reduce the intensity of the lobbying contest. This logic has been explored in a number of recent papers. I reconsider the topic with a perfectly discriminating contest. With endogenous policy proposals, there is a sub-game perfect equilibrium where the proposals of the lobbyists coincide and maximize joint welfare; moreover, this equilibrium is the only one that survives repeated elimination of dominated strategies. Hence there is no rent dissipation at all. A politician trying to maximize lobbying expenditures would prefer an imperfectly discriminating contest." (author's abstract)
We consider rent seeking contests between at least two agents who might value the prize differently. We capture a wide range of institutional aspects of contests by analyzing a class of contest success functions fulfilling several properties. The main properties are anonymity and a condition on the elasticity of a rent seeker's win probability with respect to her effort. We show the existence of a mixed-strategy equilibrium and establish equilibrium payoffs. In this equilibrium complete rent dissipation holds. Our results imply a partial robustness result for the all-pay auction.
This paper treats the market for special-interest campaign contributions and political "favors" as a simple asset market. The model yields a simple equilibrium relationship among three variables: the total amount of investor contributions a candidate receives, the monetary value of the favors he has promised, and his probability of winning. Using data on open-seat races for the U.S. House of Representatives, the author confronts the model with a series of tests. Despite the starkness of the model, the results of these tests are highly supportive. Copyright 1990 by University of Chicago Press.
Candidates for office are modeled as promising services, such as support for legislation and intervention in the bureaucracy,
to interest groups in exchange for campaign contributions. An electoral equilibrium is characterized in which candidates choose
service-contribution offers and interest groups choose whether to contribute. The model provides several explanations of congressional
incumbents' success in over 90 percent of their reelection contests: a recognition advantage, a high personal valuation of
the office, a lower cost of providing services, and policy alignment with high demand interest groups. The model yields predictions
that are consistent with empirical findings on the relation between campaign contributions and election outcomes.
This comment deals with some imperfections of the analysis presented by Austen-Smith and Wright [1]. It is argued that in [1] being informed is incorrectly identified with being informative, yielding an incomplete equilibrium analysis, and leading to bias in the kind of equilibrium behavior predicted. After correcting for this bias, the results obtained corroborate their main conclusion - legislators are often lobbied by just one of two competing groups, typically the a priori disadvantaged group. The comment also strengthens their case for counteractive lobbying; the a priori favored group typically only lobbies to counteract the influence of an opposing group. Another conclusion, however, is qualified; an increase in the groups' stakes can make it less, rather than more, likely that the legislator makes the correct decision.
This is an article about modeling methods in information economics. A notion of "favorableness" of news is introduced, characterized, and applied to four simple models. In the equilibria of these models, (1) the arrival of good news about a firm's prospects always causes its share price to rise, (2) more favorable evidence about an agent's effort leads the principal to pay a larger bonus, (3) buyers expect that any product information withheld by a salesman is unfavorable to his product, and (4) bidders figure that low bids by their competitors signal a low value for the object being sold.
This study shows that distortion of probabilities is a possible reason for rent under-dissipation in contests with relatively small number of participants. Such distortion may also result, however, in over-dissipation of the contested rent. Focusing on contests with homogeneous contestants and the commonly studied contest success function, our main results clarify under what circumstances ("i") rents are more under-dissipated relative to the standard situation where probabilities are not distorted ("ii") rents are under-dissipated, yet less intensely relative to the standard situation where probabilities are not distorted ("iii") rents are over-dissipated and ("iv") the contest does not possess a symmetric interior equilibrium in pure strategies. Copyright © The Author(s). Journal compilation © Royal Economic Society 2008.
Legislators value both campaign contributions and policy-relevant information interest groups might offer through lobbying. At the same time, there is some evidence that legislators are price setters to the extent that access to an incumbent legislator is conditional in part on making some level of campaign contribution. In this article, I consider a legislator's trade-off between granting access for informational reasons and granting access for contributions. Legislative influence in the model is exclusively through the provision of decision-relevant information, and money is used exclusively to seek access; in particular, groups cannot make contributions in exchange for policy decisions. The focus of the analysis is on the implications of the legislator's price setting on the induced pattern of demand for access and the consequences for the informational quality of subsequent legislative decisions. Moreover, although lobbyists are permitted to choose their informational source strategically, there is no possibility of dissembling when making an argument for one policy decision over another. The analysis yields both empirical predictions on the frequency and character of induced lobbying by different types of agents and provides some qualified support for limiting campaign contributions. Copyright 1998 by Oxford University Press.
We examine the incentives of an interest group to provide verifiable policy-relevant information to a political decision-maker and to exert political pressure on her. We show that both lobbying instruments are interdependent. In our view information provision is a risky attempt to affect the politician’s beliefs about the desirability of the lobby’s objective. The constraints governing informational lobbying determine a specific lottery available. The circumstances under which political pressure can be applied specify the lobby’s valuation of different beliefs of the politician and, thus, her attitude toward risk. The combination of lotteries available and induced risk preference determines the optimal lobbying behavior. Our approach gives a novel explanation for the fact that interest groups often try to provide information credibly. We identify several factors that induce risk proclivity (and thus information provision). We also show that the availability of political pressure might have a deterrence effect on information provision. This ‘shadow of political pressure’ might impede information provision at all or induce a complementary relationship between both lobbying instruments.
Since campaign finance reform is usually motivated by the concern that existing legislation can not effectively prevent campaign contributions to ‘buy favors’, this paper assumes that contributions influence political decisions. But, given that it is also widely recognized that interest groups achieve influence by providing political decision makers with policy relevant information, we also assume that lobbies engage in non-negligible informational lobbying. We focus on a single political decision to be taken and offer a simple model in which the optimal influence strategy is a mixture of both lobbying instruments. Our main result is to show that campaign finance reform may have important side effects: It may deter informational lobbying so that less policy relevant information is available and as a result political decisions become less efficient.
Interest groups pay monetary contributions to gain access and provide information to a policymaker. If their interests are aligned with those of the policymaker's constituency, they have costless access and report their private information truthfully. If their interests conflict, they are forced to pay a strictly positive contribution in order to enhance the credibility of their reports. The policymaker bases her policy decision on the competing reports and the size of the contributions accompanying these reports. The interest groups' contribution decisions are plagued by a free rider problem. I derive the implications of this problem for the size and pattern of contributions and for the degree of information aggregation. Copyright 1995 by Kluwer Academic Publishers
This paper estimates the potential social cost of trade barriers using the Harberger and the Tullock/Posner approaches for a sample of U.S. food and tobacco manufacturing industries. In addition, it tests the relationship between the computed welfare losses and special-interest political activity (PAC contributions). If all rents were dissipated through rent seeking, the social cost of trade barriers would be about 12.5 percent of domestic consumption and would be particularly large for sugar and milk products where quotas are the main instrument of protection. Furthermore, the results indicate that welfare losses are positively associated with industry lobbying but the strength of such association is strongly dependent on industry concentration. Copyright 1994 by Kluwer Academic Publishers
This paper provides a survey on studies that analyze the macroeconomic effects of intellectual property rights (IPR). The first part of this paper introduces different patent policy instruments and reviews their effects on R&D and economic growth. This part also discusses the distortionary effects and distributional consequences of IPR protection as well as empirical evidence on the effects of patent rights. Then, the second part considers the international aspects of IPR protection. In summary, this paper draws the following conclusions from the literature. Firstly, different patent policy instruments have different effects on R&D and growth. Secondly, there is empirical evidence supporting a positive relationship between IPR protection and innovation, but the evidence is stronger for developed countries than for developing countries. Thirdly, the optimal level of IPR protection should tradeoff the social benefits of enhanced innovation against the social costs of multiple distortions and income inequality. Finally, in an open economy, achieving the globally optimal level of protection requires an international coordination (rather than the harmonization) of IPR protection.
An arbitrator faces the task of deciding the level of compensation to be received by a plaintiff from a defendant. The arbitrator must rely on the verifiable submissions of the two interested parties. Because the information of the interested parties is not verifiable, the "unravelling argument" has no force. Nevertheless, a class of equilibria of this game gives rise to a particularly simple decision rule for the arbitrator which appeals to a probability distribution over the payoff-relevant state space alone. The uncertainty concerning the precision of the disputants′ information enter as parameters in this distribution. This parametrization yields an answer to how the arbitrator′s decision rule should be modified as the information of the disputants changes. Journal of Economic Literature Classification Numbers: D78, D82, L51.
Interest groups can potentially influence political decision-makers by offering contributions and by providing relevant information that sways the decision in the group's favor. What mix of these two instruments should an interest group choose, and how does the use of one instrument affect the effectiveness of the other? In this paper we identify an information externality that raises the cost of offering contributions and show that this indirect search cost reduces the group's incentive to gather information when contributions are allowed. Furthermore, we analyze how competition among lobby groups as providers of information and contributions affect the choice and effectiveness of the instruments. We show that the information externality rewards the group that can abstain from information search and focus its influence on contributions.
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