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A Simple Model of the Commercial Lobbying Industry

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  • Groll, Thomas
  • Ellis, Christopher J.

Abstract

In this paper we present a model of the behavior of commercial lobbying firms (such as the so-called K-Street lobbyists of Washington, D.C.). In contrast to classical special interest groups, commercial lobbying firms represent a variety of clients and are not directly affected by policy outcomes. They are hired by citizens, or groups of citizens, to advocate on their behalf to policymakers. In our analysis we address two basic questions; why do commercial lobbying firms exist, and what are the implications of their existence for social welfare? We answer the first part of this question by proposing that commercial lobbying firms possess a verification technology that allows them to improve the quality of information concerning the social desirability of policy proposals. This gives policymakers the incentive to allocate their scarce time to lobbying firms. Essentially it is this access to policymakers that lobbying firms sell to their clients. To address the question of social welfare we construct a simple general equilibrium model that includes commercial lobbying firms, and compare the equilibrium obtained under market provision of lobbying services to the first best optimum. We find that the market level of lobbying services can be socially either too large or too small, and characterize when each will be the case.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 36168.

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Date of creation: Jan 2012
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Handle: RePEc:pra:mprapa:36168

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Keywords: Lobbying; Influence Activities; Information Acquisition; Financial Contributions; Commercial Lobbying Firms; Political Participation;

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References

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  1. 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.
  2. Bennedsen Morten & Feldmann Sven E., 2002. "Lobbying and Legislative Organization: The Effect of the Vote of Confidence Procedure," Business and Politics, De Gruyter, De Gruyter, vol. 4(2), pages 1-18, August.
  3. Besley, Timothy & Coate, Stephen, 2001. "Lobbying and Welfare in a Representative Democracy," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 68(1), pages 67-82, January.
  4. HOLMSTROM, Bengt, . "Moral hazard and observability," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -379, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Sanford Grossman & Oliver Hart, . "An Analysis of the Principal-Agent Problem," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 15-80, Wharton School Rodney L. White Center for Financial Research.
  6. Morten Bennedsen & Sven E. Feldmann, 2000. "Lobbying Legislatures," CIE Discussion Papers, University of Copenhagen. Department of Economics. Centre for Industrial Economics 2000-04, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  7. Vijay Krishna & John Morgan, 2001. "A Model Of Expertise," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 116(2), pages 747-775, May.
  8. Bennedsen, Morten & Feldmann, Sven E., 2006. "Informational lobbying and political contributions," Journal of Public Economics, Elsevier, Elsevier, vol. 90(4-5), pages 631-656, May.
  9. 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.
  10. Mathias Dewatripont & Patrick Bolton, 2005. "Contract theory," ULB Institutional Repository 2013/9543, ULB -- Universite Libre de Bruxelles.
  11. Potters, J.J.M. & Winden, F. van, 1992. "Lobbying and asymmetric information," Open Access publications from Tilburg University urn:nbn:nl:ui:12-223989, Tilburg University.
  12. Laffont, Jean-Jacques & Tirole, Jean, 1990. "The Politics of Government Decision Making: Regulatory Institutions," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 6(1), pages 1-31, Spring.
  13. Paul Milgrom & John Roberts, 1986. "Relying on the Information of Interested Parties," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 18-32, Spring.
  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. Marianne Bertrand & Matilde Bombardini & Francesco Trebbi, 2011. "Is It Whom You Know or What You Know? An Empirical Assessment of the Lobbying Process," NBER Working Papers 16765, National Bureau of Economic Research, Inc.
  16. Lohmann, Susanne, 1995. " Information, Access, and Contributions: A Signaling Model of Lobbying," Public Choice, Springer, Springer, vol. 85(3-4), pages 267-84, December.
  17. Jordi Blanes i Vidal & Mirko Draca & Christian Fons-Rosen, 2010. "Revolving Door Lobbyists," CEP Discussion Papers dp0993, Centre for Economic Performance, LSE.
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Cited by:
  1. Thomas Groll & Christopher J. Ellis, 2013. "Dynamic Commercial Lobbying," CESifo Working Paper Series 4114, CESifo Group Munich.

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