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How a Firm Can Induce Legislators to Adopt a Bad Policy

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  • Matthias Dahm
  • Robert Dur
  • Amihai Glazer

Abstract

This paper shows why a majority of legislators may vote for a policy that benefits a firm but harms all legislators. The firm may induce legislators to support the policy by suggesting that it is more likely to invest in a district whose voters or representative support the policy. In equilibrium, no one vote may be decisive, so each legislator who seeks the firm’s investment votes for the policy, though all legislators would be better off if they all voted against the policy. Moreover, when votes reveal information about the district, the firm’s implicit promise or threat can be credible. Unlike influence mechanisms based on contributions or bribes, the behavior considered is time consistent and in line with the observed small spending by special interests.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3788.

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Date of creation: 2012
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Handle: RePEc:ces:ceswps:_3788

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Keywords: lobbying; voting; special interests; credibility;

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References

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  1. Bennedsen, Morten & Feldmann, Sven E., 2000. "Informational Lobbying And Political Contributions," Working Papers, Copenhagen Business School, Department of Economics 08-2000, Copenhagen Business School, Department of Economics.
  2. Corchón, Luis C. & Dahm, Matthias, 2010. "Welfare Maximizing Contest Success Functions when the Planner Cannot Commit," Working Papers 2072/148481, Universitat Rovira i Virgili, Department of Economics.
  3. Faccio, Mara & Parsley, Davie, 2007. "Sudden Deaths: Taking Stock of Geographic Ties," MPRA Paper 6042, University Library of Munich, Germany.
  4. Stephen Ansolabehere & John M. de Figueiredo & James M. Snyder Jr, 2003. "Why is There so Little Money in U.S. Politics?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 17(1), pages 105-130, Winter.
  5. Milyo Jeffrey & Primo David & Groseclose Timothy, 2000. "Corporate PAC Campaign Contributions in Perspective," Business and Politics, De Gruyter, De Gruyter, vol. 2(1), pages 1-15, April.
  6. Alcalde, Jose & Dahm, Matthias, 2010. "On the Complete Information First--Price Auction and its Intuitive Solution," MPRA Paper 22306, University Library of Munich, Germany.
  7. Matthias Dahm & Nicolás Porteiro, 2006. "Side Effects of Campaign Finance Reform," Working Papers 06.15, Universidad Pablo de Olavide, Department of Economics.
  8. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, American Economic Association, vol. 84(4), pages 833-50, September.
  9. Matthias Dahm & Nicolás Porteiro, 2008. "Informational lobbying under the shadow of political pressure," Social Choice and Welfare, Springer, Springer, vol. 30(4), pages 531-559, May.
  10. B. Douglas Bernheim & Antonio Rangel & Luis Rayo, 2006. "The Power of the Last Word in Legislative Policy Making," Econometrica, Econometric Society, Econometric Society, vol. 74(5), pages 1161-1190, 09.
  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. Andrew Yates, 2011. "Winner-pay contests," Public Choice, Springer, Springer, vol. 147(1), pages 93-106, April.
  13. Corchón, Luis C. & Dahm, Matthias, 2008. "Foundations for contest success functions," Working Papers 2072/9493, Universitat Rovira i Virgili, Department of Economics.
  14. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, Econometric Society, vol. 50(6), pages 1431-51, November.
  15. Gene M. Grossman & Elhanan Helpman, 2004. "A Protectionist Bias in Majoritarian Politics," NBER Working Papers 11014, National Bureau of Economic Research, Inc.
  16. Raff, Horst & Srinivasan, Krishna, 1998. "Tax incentives for import-substituting foreign investment:: Does signaling play a role?," Journal of Public Economics, Elsevier, Elsevier, vol. 67(2), pages 167-193, February.
  17. Thomas Stratmann, 2005. "Some talk: Money in politics. A (partial) review of the literature," Public Choice, Springer, Springer, vol. 124(1), pages 135-156, July.
  18. Stratmann, Thomas, 1998. "The Market for Congressional Votes: Is Timing of Contributions Everything?," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 41(1), pages 85-113, April.
  19. Carolyn L. Evans, 2009. "A Protectionist Bias In Majoritarian Politics: An Empirical Investigation," Economics and Politics, Wiley Blackwell, Wiley Blackwell, vol. 21(2), pages 278-307, 07.
  20. Thomas Schwartz, 1987. "Your vote counts on account of the way it is counted: An institutional solution to the paradox of not voting," Public Choice, Springer, Springer, vol. 54(2), pages 101-121, January.
  21. Lapp, Miriam, 1999. " Incorporating Groups into Rational Choice Explanations of Turnout: An Empirical Test," Public Choice, Springer, Springer, vol. 98(1-2), pages 171-85, January.
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