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"Favors" for Sale: Strategic Analysis of a Simple Menu Auction with Adverse Selection

  • Didier Laussel

    (Universite de la Mediterranee)

  • Michel Le Breton

    (Universite de Toulouse 1 Gremaq-Idei)

We study the distribution of a fixed amount of "favors" by an incumbent politician between two pressure groups, each of them offering to the agent a campaign contribution contingent on the quantity of "favors" received. Assuming that the total amount supplied is a private information of the politician the equilibrium contribution schedules are fully characterized. It is shown that the principals net equilibrium payoffs are larger the more quickly their marginal valuations of the favors decrease with the amount received. The equilibrium allocation of the stock of "favors" is efficient if the interest group utility functions are identical.

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Article provided by Society for AEF in its journal Annals of Economics and Finance.

Volume (Year): 6 (2005)
Issue (Month): 1 (May)
Pages: 53-73

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Handle: RePEc:cuf:journl:y:2005:v:6:i:1:p:53-73
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  1. Baye, M. & Kovenock, D. & de Vries, C., 1990. "The All-Pay Auction with Complete Information," Discussion Paper 1990-51, Tilburg University, Center for Economic Research.
  2. Grossman, Gene & Helpman, Elhanan, 1993. "Trade Wars and Trade Talks," CEPR Discussion Papers 806, C.E.P.R. Discussion Papers.
  3. Baye, Michael R & Kovenock, Dan & de Vries, Casper G, 1993. "Rigging the Lobbying Process: An Application of the All-Pay Auction," American Economic Review, American Economic Association, vol. 83(1), pages 289-94, March.
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  6. Richard Boylan, 1998. "Private bills: a theoretical and empirical study of lobbying," Public Economics 9801002, EconWPA.
  7. Pinelopi Koujianou Goldbe & Giovanni Maggi, 1997. "Protection for Sale: An Empirical Investigation," NBER Working Papers 5942, National Bureau of Economic Research, Inc.
  8. LAUSSEL, Didier & LE BRETON, Michel, . "Conflict and cooperation. The structure of equilibrium payoffs in common agency," CORE Discussion Papers RP 1519, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Snyder, James M, Jr, 1990. "Campaign Contributions as Investments: The U.S. House of Representatives, 1980-1986," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1195-1227, December.
  10. Becker, Gary S, 1983. "A Theory of Competition among Pressure Groups for Political Influence," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 371-400, August.
  11. Steven D. Levitt, 1995. "Policy Watch: Congressional Campaign Finance Reform," Journal of Economic Perspectives, American Economic Association, vol. 9(1), pages 183-193, Winter.
  12. Amann, Erwin & Leininger, Wolfgang, 1996. "Asymmetric All-Pay Auctions with Incomplete Information: The Two-Player Case," Games and Economic Behavior, Elsevier, vol. 14(1), pages 1-18, May.
  13. Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers 162, Princeton, Woodrow Wilson School - Public and International Affairs.
  14. Bernheim, B Douglas & Whinston, Michael D, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 1-31, February.
  15. Lohmann, Susanne, 1995. " Information, Access, and Contributions: A Signaling Model of Lobbying," Public Choice, Springer, vol. 85(3-4), pages 267-84, December.
  16. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
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