The cost of political campaigns in the U.S. has risen substantially in recent years. For example, real spending on congressional election campaigns doubled between 1976 and 1992 (Steven D. Levitt [1995]). There are many reasons why increased campaign spending might be socially harmful. First, increased spending means increased fund-raising, which may keep politicians from their legislative duties.1 Second, a lobbyist who makes a large campaign contribution may have undue influence on electoral outcomes, on the shaping of legislation, or on the outcome of regulatory proceedings.2 That is, the socially preferred candidate or legislation may not prevail. Likewise, a lobbyist involved in a regulatory matter or a competition for a government contract may benefit unduly from a legislator's intervention.3 Third, a perception that campaign contributions purchase influence may lead to increased tolerance of corruption in the private sector. A desire to control campaign spending has spawned many initiatives to limit both campaign contributions and spending, beginning with the passage of the Federal Election Campaign Act (FECA). Political Action Committees (PACs) can contribute at most $5,000 per election to a candidate, while individuals can contribute at most $1,000. (Restrictions have also been put on in- kind contributions, making it more difficult to circumvent these limits.)4 While direct restrictions on campaign spending have proven difficult to implement, recent initiatives aim to impose voluntary spending limits and stricter limits on contributions.5 Despite the existing legislation and the proposals to limit contributions, little is known about the impact of contribution limits on aggregate expenditures. While it is intuitively appealing that aggregate expenditures would drop, we challenge that intuition here. We study a lobbying game and show that a cap on individual lobbyists' expenditures may have the perverse effect of increasing aggregate expenditures and lowering total surplus. This result suggests that a cap on campaign contributions may increase aggregate contributions.6 The next section presents the model and describes the equilibrium when lobbyists are unconstrained. We then solve for the equilibrium when lobbyists face a cap on individual expenditures. When a cap constrains the high-valuation lobbyist, a lobbyist with a lower valuation for the political prize becomes relatively more aggressive. As a consequence, total lobbying expenditures may rise. Since the high-valuation lobbyist's probability of winning the prize drops, the cap reduces total surplus if private and social valuations coincide. Concluding remarks are contained in the final section.
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Paper provided by EconWPA in its series Microeconomics with number
9809003.
Length: 16 pages Date of creation: 30 Sep 1998 Date of revision: Handle: RePEc:wpa:wuwpmi:9809003
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Find related papers by JEL classification: D44 - Microeconomics - - Market Structure and Pricing - - - Auctions C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
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