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Campaign Advertising and Voter Welfare

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  • Andrea Prat

Abstract

This paper investigates the role of campaign advertising and the opportunity of legal restrictions on it. An electoral race is modelled as a signalling game with three classes of players: many voters, two candidates, and one interest group. The group has non-verifiable insider information on the candidates' quality and, on the basis of this information, offers a contribution to each candidate in exchange for a favourable policy position. Candidates spend the contributions they receive on non-directly informative advertising. This paper shows that: (1) a separating equilibrium exists in which the group contributes to a candidate only if the insider information about that candidate is positive; (2) although voters are fully rational, a ban on campaign advertising can be welfare-improving; and (3) split contributions may arise in equilibrium (and, if they arise too often, they are detrimental to voters). Copyright 2002, Wiley-Blackwell.

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Bibliographic Info

Article provided by Oxford University Press in its journal The Review of Economic Studies.

Volume (Year): 69 (2002)
Issue (Month): 4 ()
Pages: 999-1017

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Handle: RePEc:oup:restud:v:69:y:2002:i:4:p:999-1017

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  1. Paul R. Milgrom & John Roberts, 1984. "Price and Advertising Signals of Product Quality," Cowles Foundation Discussion Papers 709, Cowles Foundation for Research in Economics, Yale University.
  2. Cukierman, Alex, 1991. " Asymmetric Information and the Electoral Momentum of Public Opinion Polls," Public Choice, Springer, vol. 70(2), pages 181-213, May.
  3. Mailath George J. & Okuno-Fujiwara Masahiro & Postlewaite Andrew, 1993. "Belief-Based Refinements in Signalling Games," Journal of Economic Theory, Elsevier, vol. 60(2), pages 241-276, August.
  4. Bagwell, Kyle & Ramey, Garey, 1994. "Coordination Economies, Advertising, and Search Behavior in Retail Markets," American Economic Review, American Economic Association, vol. 84(3), pages 498-517, June.
  5. Kihlstrom, Richard E & Riordan, Michael H, 1984. "Advertising as a Signal," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 427-50, June.
  6. Lopez, Rigoberto A & Pagoulatos, Emilio, 1996. "Trade Protection and the Role of Campaign Contributions in U.S. Food and Tobacco Industries," Economic Inquiry, Western Economic Association International, vol. 34(2), pages 237-48, April.
  7. Paul R. Milgrom, 1979. "Good Nevs and Bad News: Representation Theorems and Applications," Discussion Papers 407R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Timothy Feddersen & Wolfgang Pesendorfer, 1997. "Voting Behavior and Information Aggregation in Elections With Private Information," Levine's Working Paper Archive 1560, David K. Levine.
  9. Potters, J.J.M. & Sloof, R. & Winden, F.A.A.M. van, 1997. "Campaign Expenditures, Contributions and Direct Endorsements: The Strategic Use of Information and Money to Influence Voter Behavior," Discussion Paper 1997-27, Tilburg University, Center for Economic Research.
  10. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
  11. Baron, David P, 1989. "Service-Induced Campaign Contributions and the Electoral Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 104(1), pages 45-72, February.
  12. Lohmann, Susanne, 1994. "Information Aggregation through Costly Political Action," American Economic Review, American Economic Association, vol. 84(3), pages 518-30, June.
  13. Gary S. Becker & Kevin M. Murphy, 1990. "A Simple Theory of Advertising as a Good," University of Chicago - George G. Stigler Center for Study of Economy and State 58, Chicago - Center for Study of Economy and State.
  14. Franklin M. Fisher & John J. McGowan, 1979. "Advertising and Welfare: Comment," Bell Journal of Economics, The RAND Corporation, vol. 10(2), pages 726-727, Autumn.
  15. Becker, Gary S & Murphy, Kevin M, 1993. "A Simple Theory of Advertising as a Good or Bad," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 941-64, November.
  16. Butters, Gerard R, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 465-91, October.
  17. Rebecca Morton & Charles Cameron, 1992. "Elections And The Theory Of Campaign Contributions: A Survey And Critical Analysis," Economics and Politics, Wiley Blackwell, vol. 4(1), pages 79-108, 03.
  18. Avinash Dixit & Victor Norman, 1978. "Advertising and Welfare," Bell Journal of Economics, The RAND Corporation, vol. 9(1), pages 1-17, Spring.
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