Interest Group Behavior and Influence

During the last two decades economics has witnessed a remarkable upsurge in theoretical as well as empirical studies of the behavior and of the political influence of interest groups. Recent books by Sloof (1998), Drazen (2000), Persson and Tabellini (2000), and Grossman and Helpman (2001) refer to a wealth of evidence of the significance of organized interests in the political arena, besides presenting surveys of theoretical studies. Political economics definitively seems to move away from the common assumption of atomistic demand in ‘political markets’ (the median voter model) towards a more realistic framework. In a sense it is picking up and deepening some older strands of literature inspired by classical writers on political economy (like Marx and Pareto), the so-called pluralists in political science (like Bentley and Truman), and others, who were concerned with the political impact of particular social groups under the label of ‘factions’, ‘classes’, or ‘elites’ (see e.g., Bottomore 1970; Moe 1980). The modern political economic literature to be surveyed in this paper, however, is characterized by much greater rigor, through the use mathematical modeling, and keener attention for individual incentives. Strict adherence to methodological individualism would require the modeling of the following chain of events regarding the interaction between policymakers and interest groups: group formation/adjustment → group decision making → group activity → political decision making → government policies (plus other relevant events) → group formation/adjustment. Due to the complexity involved, group formation and adjustment (influenced by policy outcomes) are typically neglected by taking the existence of interest groups as given, thereby sidestepping the thorny issue of individual incentives for participation in collective action (Olson 1965). In addition, interest groups are commonly assumed to act as single (unitary) actors. Nevertheless, our conclusion will be that there has been substantial theoretical progress, opening up many promising paths for important and exciting research.