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Selling Favors in the Lab: Experiments on Campaign Finance Reform

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  • Daniel Houser
  • Thomas Stratmann

Abstract

Substantial academic interest and public policy debate centers on campaign finance reform. Campaign resources can provide benefits to constituencies if candidates use them to fund the distribution of useful information. On the other hand, voters can potentially be harmed if candidates trade policy favors to special interests in exchange for contributions. Unfortunately, because informative field data on this topic are very difficult to obtain, the effects of different campaign finance strategies on election outcomes and economic welfare remain largely uninformed by empirical analyses. This paper reports data from novel laboratory experiments designed to shed light on the campaign finance debate. Our experiment is based on a model where power-hungry candidates are motivated to trade favors for campaign contributions. Our data is consistent with the model’s predictions. We find that voters’ revise their beliefs in response to candidate advertising in a way that is consistent with theory. Moreover, in relation to privately financed electoral competitions, in publicly financed campaigns (i) high-quality candidates are elected more frequently, and (ii) margins of victory are larger. Both of these outcomes are predicted by theory. We conduct policy experiments on various campaign finance strategies, including the widely suggested caps on private fundraising. Our results suggest that caps can improve voter welfare but do not increase the likelihood that high-quality candidates will be elected.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1727.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1727

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References

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  1. Thomas Stratmann, 2006. "Contribution limits and the effectiveness of campaign spending," Public Choice, Springer, vol. 129(3), pages 461-474, December.
  2. Stephen Coate, 2004. "Pareto-Improving Campaign Finance Policy," American Economic Review, American Economic Association, vol. 94(3), pages 628-655, June.
  3. Prat, Andrea, 2002. "Campaign Spending with Office-Seeking Politicians, Rational Voters, and Multiple Lobbies," Journal of Economic Theory, Elsevier, vol. 103(1), pages 162-189, March.
  4. Wittman, Donald, 2005. "Candidate Quality, Pressure Group Endorsements, And The Nature Of Political Advertising," Santa Cruz Department of Economics, Working Paper Series qt2tw043ff, Department of Economics, UC Santa Cruz.
  5. Daniel Houser & Michael Keane & Kevin McCabe, 2002. "Behavior in a dynamic decision problem: An analysis of experimental evidence using a bayesian type classification algorithm," Experimental 0211001, EconWPA.
  6. Daniel Houser & Robert Kurzban, 2002. "Revisiting Kindness and Confusion in Public Goods Experiments," American Economic Review, American Economic Association, vol. 92(4), pages 1062-1069, September.
  7. 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.
  8. Grossman, Gene & Helpman, Elhanan, 1993. "Protection for Sale," CEPR Discussion Papers 827, C.E.P.R. Discussion Papers.
  9. Stratmann, Thomas, 1998. "The Market for Congressional Votes: Is Timing of Contributions Everything?," Journal of Law and Economics, University of Chicago Press, vol. 41(1), pages 85-113, April.
  10. Prat, Andrea, 1999. "Campaign Advertising and Voter Welfare," CEPR Discussion Papers 2152, C.E.P.R. Discussion Papers.
  11. Gene Grossman & Elhanan Helpman, 1994. "Electoral Competition and Special Interest Politics," NBER Working Papers 4877, National Bureau of Economic Research, Inc.
  12. Christian Schultz, 2003. "Strategic Campaigns and Redistributive Politics," CESifo Working Paper Series 858, CESifo Group Munich.
  13. Levitt, Steven D, 1994. "Using Repeat Challengers to Estimate the Effect of Campaign Spending on Election Outcomes in the U.S. House," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 777-98, August.
  14. Stratmann, Thomas, 2002. "Can Special Interests Buy Congressional Votes? Evidence from Financial Services Legislation," Journal of Law and Economics, University of Chicago Press, vol. 45(2), pages 345-73, October.
  15. David Austen-Smith, 1987. "Interest groups, campaign contributions, and probabilistic voting," Public Choice, Springer, vol. 54(2), pages 123-139, January.
  16. 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.
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Cited by:
  1. Marie Claire Villeval, 2007. "Experimental Economics: Contributions, Recent Developments, and New Challenges," Post-Print halshs-00175179, HAL.
  2. Hanming Fang & Dmitry A. Shapiro & Arthur Zillante, 2011. "An Experimental Study of Alternative Campaign Finance Systems: Donations, Elections and Policy Choices," NBER Working Papers 17384, National Bureau of Economic Research, Inc.
  3. Thomas Stratmann, 2006. "Contribution limits and the effectiveness of campaign spending," Public Choice, Springer, vol. 129(3), pages 461-474, December.
  4. Leopoldo Fergusson, 2012. "Media Markets, Special Interests, and Voters," DOCUMENTOS CEDE 009796, UNIVERSIDAD DE LOS ANDES-CEDE.
  5. Ovtchinnikov, Alexei V. & Pantaleoni, Eva, 2012. "Individual political contributions and firm performance," Journal of Financial Economics, Elsevier, vol. 105(2), pages 367-392.
  6. Erte Xiao & Daniel Houser, 2007. "Emotion Expression and Fairness in Economic Exchange," Working Papers 1004, George Mason University, Interdisciplinary Center for Economic Science, revised Nov 2007.
  7. Daniel Houser & Rebecca Morton & Thomas Stratmann, 2008. "Turned Off or Turned Out? Campaign Advertising,Information, and Voting," Working Papers 1005, George Mason University, Interdisciplinary Center for Economic Science, revised Jul 2008.
  8. Thomas Stratmann, 2005. "Some talk: Money in politics. A (partial) review of the literature," Public Choice, Springer, vol. 124(1), pages 135-156, July.

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