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"Favors" for Sale: Strategic Analysis of a Simple Menu Auction with Adverse Selection

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  • Didier Laussel

    (Universite de la Mediterranee)

  • Michel Le Breton

    (Universite de Toulouse 1 Gremaq-Idei)

Abstract

We study the distribution of a fixed amount of "favors" by an incumbent politician between two pressure groups, each of them offering to the agent a campaign contribution contingent on the quantity of "favors" received. Assuming that the total amount supplied is a private information of the politician the equilibrium contribution schedules are fully characterized. It is shown that the principals net equilibrium payoffs are larger the more quickly their marginal valuations of the favors decrease with the amount received. The equilibrium allocation of the stock of "favors" is efficient if the interest group utility functions are identical.

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Bibliographic Info

Article provided by Society for AEF in its journal Annals of Economics and Finance.

Volume (Year): 6 (2005)
Issue (Month): 1 (May)
Pages: 53-73

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Handle: RePEc:cuf:journl:y:2005:v:6:i:1:p:53-73

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Keywords: Menu auction; Adverse selection;

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  1. Dan Kovenock & Michael R. Baye & Casper G. de Vries, 1996. "The all-pay auction with complete information (*)," Economic Theory, Springer, Springer, vol. 8(2), pages 291-305.
  2. Becker, Gary S, 1983. "A Theory of Competition among Pressure Groups for Political Influence," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 98(3), pages 371-400, August.
  3. Martimort, David, 1992. "Multi-Principaux avec Anti-Sélection," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 14, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Laussel, Didier & Le Breton, Michel, 2001. "Conflict and Cooperation: The Structure of Equilibrium Payoffs in Common Agency," Journal of Economic Theory, Elsevier, Elsevier, vol. 100(1), pages 93-128, September.
  5. Baye, M.R. & Kovenock, D. & De Vries, C.G., 1992. "Rigging the Lobbying Process: An Application of the All- Pay Auction," Papers, Pennsylvania State - Department of Economics 9-92-2, Pennsylvania State - Department of Economics.
  6. James M. Snyder, 1991. "On Buying Legislatures," Economics and Politics, Wiley Blackwell, Wiley Blackwell, vol. 3(2), pages 93-109, 07.
  7. Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers, Tel Aviv 21-92, Tel Aviv.
  8. Amann, Erwin & Leininger, Wolfgang, 1996. "Asymmetric All-Pay Auctions with Incomplete Information: The Two-Player Case," Games and Economic Behavior, Elsevier, Elsevier, vol. 14(1), pages 1-18, May.
  9. Grossman, G.M. & Helpman, E., 1993. "Trade Wars and Trade Talks," Papers, Tel Aviv 1-93, Tel Aviv.
  10. Steven D. Levitt, 1995. "Policy Watch: Congressional Campaign Finance Reform," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 9(1), pages 183-193, Winter.
  11. Lohmann, Susanne, 1995. " Information, Access, and Contributions: A Signaling Model of Lobbying," Public Choice, Springer, Springer, vol. 85(3-4), pages 267-84, December.
  12. Boylan, R.T., 1997. "Private Bills: A Theoretical and Empirical Study of Lobbying," Washington University, Business, Law and Economics Center, John M. Olin School of Business, Washington University 97-04, Business, Law and Economics Center, John M. Olin School of Business, Washington University.
  13. Martimort, David, 1994. "Exclusive Dealing, Common Agency and Multiprincipals Incentive Theory," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 43, Institut d'Économie Industrielle (IDEI), Toulouse, revised 1996.
  14. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, American Economic Association, vol. 64(3), pages 291-303, June.
  15. Giovanni Maggi & Pinelopi Koujianou Goldberg, 1999. "Protection for Sale: An Empirical Investigation," American Economic Review, American Economic Association, American Economic Association, vol. 89(5), pages 1135-1155, December.
  16. Snyder, James M, Jr, 1990. "Campaign Contributions as Investments: The U.S. House of Representatives, 1980-1986," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(6), pages 1195-1227, December.
  17. Bernheim, B Douglas & Whinston, Michael D, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 101(1), pages 1-31, February.
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