The author investigates the political determinants of government decisions that benefit special interest groups - especially government decisions to deal with banking crises. He finds that the better informed the voters, the more proximate elections, and the larger the number of political veto players ( conditional on the costs to voters of relevant policy decision), the smaller the government's fiscal transfer are to the financial sector and the less likely the government is to exercise forbearance in dealing with insolvent financial institutions. The results suggest that policies thatmight be appropriate for mitigating banking crises in the United States might be less effective in settings where voters are less informed, where elections are less competitive, and where there are fewer veto players, because in these settings checks and balances are missing. These policies include: a) Disseminating information about the costs of inefficient government decisions. b) Improving the structure of legislative regulatory oversight. c) Intervening early in insolvent banks. The author concludes that the more veto players there are, the less likely policies are to favor special interest groups (contrary to previous views). Moreover, the closer the elections, the less likely policies are to favor special interest groups.
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Leonardo Felli & Antonio Merlo, .
"Endogenous Lobbying,"
CARESS Working Papres
00-03, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
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Leonardo Felli & Antonio Merlo, 2001.
"Endogenous Lobbying,"
PIER Working Paper Archive
04-043, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 01 Oct 2004.
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Felli, L. & Merlo, A., 2000.
"Endogenous Lobbying,"
Working Papers
00-04, C.V. Starr Center for Applied Economics, New York University.
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