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Selling favors in the lab: experiments on campaign finance reform

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  • Daniel Houser

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  • Thomas Stratmann

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Abstract

Substantial academic interest and public policy debate centers on campaign finance reform. Campaign resources can provide benefits to constituencies if candidates use them to fund the distribution of useful information. On the other hand, voters can potentially be harmed if candidates trade policy favors to special interests in exchange for contributions. Unfortunately, because informative field data on this topic are very difficult to obtain, the effects of different campaign finance strategies on election outcomes and economic welfare remain largely uninformed by empirical analyses. This paper reports data from novel laboratory experiments designed to shed light on the campaign finance debate. Our experiment is based on a model where power-hungry candidates are motivated to trade favors for campaign contributions. Our data is consistent with the model’s predictions. We find that voters’ revise their beliefs in response to candidate advertising in a way that is consistent with theory. Moreover, in relation to privately financed electoral competitions, in publicly financed campaigns (i) high-quality candidates are elected more frequently, and (ii) margins of victory are larger. Both of these outcomes are predicted by theory. We conduct policy experiments on various campaign finance strategies, including the widely suggested caps on private fundraising. Our results suggest that caps can improve voter welfare but do not increase the likelihood that high-quality candidates will be elected.
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Suggested Citation

  • Daniel Houser & Thomas Stratmann, 2008. "Selling favors in the lab: experiments on campaign finance reform," Public Choice, Springer, vol. 136(1), pages 215-239, July.
  • Handle: RePEc:kap:pubcho:v:136:y:2008:i:1:p:215-239 DOI: 10.1007/s11127-008-9292-z
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    References listed on IDEAS

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    1. Daniel Houser & Michael Keane & Kevin McCabe, 2004. "Behavior in a Dynamic Decision Problem: An Analysis of Experimental Evidence Using a Bayesian Type Classification Algorithm," Econometrica, Econometric Society, vol. 72(3), pages 781-822, May.
    2. Wittman, Donald, 2007. "Candidate quality, pressure group endorsements and the nature of political advertising," European Journal of Political Economy, Elsevier, vol. 23(2), pages 360-378, June.
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    4. Thomas Stratmann, 2006. "Contribution limits and the effectiveness of campaign spending," Public Choice, Springer, vol. 129(3), pages 461-474, December.
    5. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, pages 833-850.
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    7. Andrea Prat, 2002. "Campaign Advertising and Voter Welfare," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 999-1017.
    8. Stratmann, Thomas, 2002. "Can Special Interests Buy Congressional Votes? Evidence from Financial Services Legislation," Journal of Law and Economics, University of Chicago Press, vol. 45(2), pages 345-373, October.
    9. Levitt, Steven D, 1994. "Using Repeat Challengers to Estimate the Effect of Campaign Spending on Election Outcomes in the U.S. House," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 777-798, August.
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    11. Prat, Andrea, 2002. "Campaign Spending with Office-Seeking Politicians, Rational Voters, and Multiple Lobbies," Journal of Economic Theory, Elsevier, vol. 103(1), pages 162-189, March.
    12. Gene M. Grossman & Elhanan Helpman, 1996. "Electoral Competition and Special Interest Politics," Review of Economic Studies, Oxford University Press, vol. 63(2), pages 265-286.
    13. Rebecca Morton & Charles Cameron, 1992. "Elections And The Theory Of Campaign Contributions: A Survey And Critical Analysis," Economics and Politics, Wiley Blackwell, vol. 4(1), pages 79-108, March.
    14. Stephen Coate, 2004. "Pareto-Improving Campaign Finance Policy," American Economic Review, American Economic Association, vol. 94(3), pages 628-655, June.
    15. Stratmann, Thomas, 1998. "The Market for Congressional Votes: Is Timing of Contributions Everything?," Journal of Law and Economics, University of Chicago Press, vol. 41(1), pages 85-113, April.
    16. David Austen-Smith, 1987. "Interest groups, campaign contributions, and probabilistic voting," Public Choice, Springer, vol. 54(2), pages 123-139, January.
    17. Daniel Houser & Robert Kurzban, 2002. "Revisiting Kindness and Confusion in Public Goods Experiments," American Economic Review, American Economic Association, vol. 92(4), pages 1062-1069, September.
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    Citations

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    Cited by:

    1. Köppl-Turyna, Monika, 2014. "Campaign finance regulations and policy convergence: The role of interest groups and valence," European Journal of Political Economy, Elsevier, vol. 33(C), pages 1-19.
    2. Emir Kamenica & Louisa Egan Brad, 2014. "Voters, dictators, and peons: expressive voting and pivotality," Public Choice, Springer, vol. 159(1), pages 159-176, April.
    3. William Pyle & Laura Solanko, 2013. "The composition and interests of Russia’s business lobbies: testing Olson’s hypothesis of the “encompassing organization”," Public Choice, Springer, vol. 155(1), pages 19-41, April.
    4. Marie-Claire Villeval, 2007. "Experimental Economics: Contributions, Recent Developments, and New Challenges," Working Papers 0706, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    5. Thomas Stratmann, 2006. "Contribution limits and the effectiveness of campaign spending," Public Choice, Springer, vol. 129(3), pages 461-474, December.
    6. repec:bla:acctfi:v:56:y:2016:i:4:p:961-984 is not listed on IDEAS
    7. Thomas Markussen & Jean-Robert Tyran, 2017. "Choosing a Public-Spirited Leader. An experimental investigation of political selection," Discussion Papers 17-04, University of Copenhagen. Department of Economics.
    8. Thomas Stratmann, 2005. "Some talk: Money in politics. A (partial) review of the literature," Public Choice, Springer, vol. 124(1), pages 135-156, July.
    9. Daniel Houser & Thomas Stratmann, 2012. "Gordon Tullock and experimental economics," Public Choice, Springer, vol. 152(1), pages 211-222, July.
    10. Erte Xiao & Daniel Houser, 2007. "Emotion Expression and Fairness in Economic Exchange," Working Papers 1004, George Mason University, Interdisciplinary Center for Economic Science, revised Nov 2007.
    11. Cesar Martinelli & Thomas R. Palfrey, 2017. "Communication and Information in Games of Collective Decision: A Survey of Experimental Results," Working Papers 1065, George Mason University, Interdisciplinary Center for Economic Science.
    12. Houser, Daniel & Morton, Rebecca & Stratmann, Thomas, 2011. "Turned on or turned out? Campaign advertising, information and voting," European Journal of Political Economy, Elsevier, vol. 27(4), pages 708-727.
    13. Fergusson, Leopoldo, 2014. "Media markets, special interests, and voters," Journal of Public Economics, Elsevier, vol. 109(C), pages 13-26.
    14. repec:eee:jeborg:v:144:y:2017:i:c:p:204-218 is not listed on IDEAS
    15. Ovtchinnikov, Alexei V. & Pantaleoni, Eva, 2012. "Individual political contributions and firm performance," Journal of Financial Economics, Elsevier, vol. 105(2), pages 367-392.
    16. Hanming Fang & Dmitry A. Shapiro & Arthur Zillante, 2011. "An Experimental Study of Alternative Campaign Finance Systems: Donations, Elections and Policy Choices," NBER Working Papers 17384, National Bureau of Economic Research, Inc.
    17. Bernardino Benito & Francisco Bastida & Ana-María Ríos & Cristina Vicente, 2014. "The causes of legal rents extraction: evidence from Spanish municipalities," Public Choice, Springer, vol. 161(3), pages 367-383, December.

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