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Policy-advising competition and endogenous lobbies

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  • Foerster, Manuel
  • Habermacher, Daniel

Abstract

We investigate Bertrand competition between experts in a policy-advising market. A policy-maker can either hire one of the experts or take the policy decision himself. The experts differ in policy competence and preferences and may either charge a fee or offer lobbying contributions. In equilibrium, the hired expert charges a fee if she has high policy competence and policy preferences are roughly aligned. Otherwise, the expert pays contributions—and thus acts as a lobbyist instead of as an advisor. Comparative statics show that more intense competition may even cause an expert previously hired at a positive price to engage in lobbying. Finally, we apply the model to competition between experts with different motives, reflecting the current debate about the role of professional consultants in advising governments. We show that the presence of able consultants may decrease social welfare if the policy issue is narrow and mainly concerns the policy-maker’s own voters. Our results give rise to alternative explanations for the empirical puzzle of why there is so little money in politics.

Suggested Citation

  • Foerster, Manuel & Habermacher, Daniel, 2025. "Policy-advising competition and endogenous lobbies," Journal of Public Economics, Elsevier, vol. 245(C).
  • Handle: RePEc:eee:pubeco:v:245:y:2025:i:c:s0047272725000520
    DOI: 10.1016/j.jpubeco.2025.105354
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    Cited by:

    1. Manuel Foerster & Daniel Habermacher, 2025. "Authority, Communication, and Internal Markets," Working Papers 361, Red Nacional de Investigadores en Economía (RedNIE).

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    Keywords

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    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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