IDEAS home Printed from https://ideas.repec.org/a/kap/pubcho/v155y2013i3p211-228.html
   My bibliography  Save this article

Bailout for sale? The vote to save Wall Street

Author

Listed:
  • Michael Dorsch

Abstract

This paper provides a public choice analysis of the 2008 banking bailout in the United States. The paper introduces heterogeneity of congressional districts into the common agency problem in special interest politics. District heterogeneity implies district-specific electoral constraints on legislators’ ability to collect rents from, and cast dissonant votes in support of, special interests. An empirical analysis examines legislative voting on the initial bailout proposal, using campaign contributions to legislators from special interest groups and the importance of financial services for employment within congressional districts as the main explanatory variables. The empirical analysis corrects for possible endogeneity bias, using valid instruments, and considers several intuitive sub-sample estimations as alternative methods for addressing the endogeneity issue. The paper provides empirical evidence that campaign contributions from the financial services sector influenced legislative voting on the banking bailout. Copyright Springer Science+Business Media, LLC 2013

Suggested Citation

  • Michael Dorsch, 2013. "Bailout for sale? The vote to save Wall Street," Public Choice, Springer, vol. 155(3), pages 211-228, June.
    • Handle: RePEc:kap:pubcho:v:155:y:2013:i:3:p:211-228
    DOI: 10.1007/s11127-011-9888-6
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s11127-011-9888-6
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11127-011-9888-6?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Snyder Jr., James M. & Ting, Michael M., 2008. "Interest groups and the electoral control of politicians," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 482-500, April.
    2. Stephen Ansolabehere & John M. de Figueiredo & James M. Snyder Jr, 2003. "Why is There so Little Money in U.S. Politics?," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 105-130, Winter.
    3. 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.
    4. Andrews,Donald W. K. & Stock,James H. (ed.), 2005. "Identification and Inference for Econometric Models," Cambridge Books, Cambridge University Press, number 9780521844413.
    5. Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521027922.
    6. Kroszner, Randall S & Stratmann, Thomas, 1998. "Interest-Group Competition and the Organization of Congress: Theory and Evidence from Financial Services' Political Action Committees," American Economic Review, American Economic Association, vol. 88(5), pages 1163-1187, December.
    7. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    8. Atif Mian & Amir Sufi & Francesco Trebbi, 2010. "The Political Economy of the US Mortgage Default Crisis," American Economic Review, American Economic Association, vol. 100(5), pages 1967-1998, December.
    9. Thomas Stratmann, 2005. "Some talk: Money in politics. A (partial) review of the literature," Public Choice, Springer, vol. 124(1), pages 135-156, July.
    10. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2007. "Enhanced routines for instrumental variables/GMM estimation and testing," CERT Discussion Papers 0706, Centre for Economic Reform and Transformation, Heriot Watt University.
    11. 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.
    12. Allan H. Meltzer, 1998. "Asian Problems and the IMF," Cato Journal, Cato Journal, Cato Institute, vol. 17(3), pages 264-274, Winter.
    13. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September.
    14. Deniz Igan & Prachi Mishra & Thierry Tressel, 2012. "A Fistful of Dollars: Lobbying and the Financial Crisis," NBER Macroeconomics Annual, University of Chicago Press, vol. 26(1), pages 195-230.
    15. Roger Congleton, 2009. "On the political economy of the financial crisis and bailout of 2008–2009," Public Choice, Springer, vol. 140(3), pages 287-317, September.
    16. Peltzman, Sam, 1984. "Constituent Interest and Congressional Voting," Journal of Law and Economics, University of Chicago Press, vol. 27(1), pages 181-210, April.
    17. William Welch, 1974. "The economics of campaign funds," Public Choice, Springer, vol. 20(1), pages 83-97, December.
    18. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
    19. Walter B. Wriston, 1998. "Dumb Networks and Smart Capital," Cato Journal, Cato Journal, Cato Institute, vol. 17(3), Winter.
    20. Gene M. Grossman & Elhanan Helpman, 1996. "Electoral Competition and Special Interest Politics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 63(2), pages 265-286.
    21. Robert Barro, 1973. "The control of politicians: An economic model," Public Choice, Springer, vol. 14(1), pages 19-42, March.
    22. Denzau, Arthur T. & Munger, Michael C., 1986. "Legislators and Interest Groups: How Unorganized Interests Get Represented," American Political Science Review, Cambridge University Press, vol. 80(1), pages 89-106, March.
    23. 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.
    24. David Austen-Smith, 1987. "Interest groups, campaign contributions, and probabilistic voting," Public Choice, Springer, vol. 54(2), pages 123-139, January.
    25. Roger Congleton, 1989. "Campaign finances and political platforms: The economics of political controversy," Public Choice, Springer, vol. 62(2), pages 101-118, August.
    26. Schmidt, Amy B & Kenny, Lawrence W & Morton, Rebecca B, 1996. "Evidence on Electoral Accountability in the U.S. Senate: Are Unfaithful Agents Really Punished?," Economic Inquiry, Western Economic Association International, vol. 34(3), pages 545-567, July.
    27. Stratmann, Thomas, 1992. "Are Contributions Rational? Untangling Strategies of Political Action Committees," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 647-664, June.
    28. Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
    29. Chappell, Henry W, Jr, 1982. "Campaign Contributions and Congressional Voting: A Simultaneous Probit-Tobit Model," The Review of Economics and Statistics, MIT Press, vol. 64(1), pages 77-83, February.
    30. John Shea, 1997. "Instrument Relevance in Multivariate Linear Models: A Simple Measure," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 348-352, May.
    31. Peter Boone & Simon Johnson, 2010. "The Doomsday Cycle," CentrePiece - The magazine for economic performance 300, Centre for Economic Performance, LSE.
    32. Stratmann, Thomas, 1996. "How Reelection Constituencies Matter: Evidence from Political Action Committees' Contributions and Congressional Voting," Journal of Law and Economics, University of Chicago Press, vol. 39(2), pages 603-635, October.
    33. David P. Baron, 1989. "Service-Induced Campaign Contributions and the Electoral Equilibrium," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(1), pages 45-72.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Matter, Ulrich & Roberti, Paolo & Slotwinski, Michaela, 2019. "Vote buying in the US Congress," ZEW Discussion Papers 19-052, ZEW - Leibniz Centre for European Economic Research.
    2. Edward Stringham, 2014. "It’s not me, it’s you: the functioning of Wall Street during the 2008 economic downturn," Public Choice, Springer, vol. 161(3), pages 269-288, December.
    3. Philipp an de Meulen & Christian Bredemeier, 2012. "A Political Winner’s Curse: Why Preventive Policies Pass Parliament so Narrowly," Ruhr Economic Papers 0336, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    4. repec:zbw:rwirep:0336 is not listed on IDEAS
    5. Ulrich Matter & Michaela Slotwinski, 2016. "Precise Control over Legislative Vote Outcomes: A Forensic Approach to Political Economics," CESifo Working Paper Series 6007, CESifo.
    6. Jan Zápal, 2017. "Crafting consensus," Public Choice, Springer, vol. 173(1), pages 169-200, October.
    7. G. P. Manish & Colin O’Reilly, 2019. "Banking regulation, regulatory capture and inequality," Public Choice, Springer, vol. 180(1), pages 145-164, July.
    8. an de Meulen, Philipp & Bredemeier, Christian, 2012. "A Political Winner's Curse: Why Preventive Policies Pass Parliament so Narrowly," Ruhr Economic Papers 336, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bombardini, Matilde & Trebbi, Francesco, 2011. "Votes or money? Theory and evidence from the US Congress," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 587-611, August.
    2. Jürgen Huber & Michael Kirchler, 2013. "Corporate campaign contributions and abnormal stock returns after presidential elections," Public Choice, Springer, vol. 156(1), pages 285-307, July.
    3. Thomas Stratmann, 2005. "Some talk: Money in politics. A (partial) review of the literature," Public Choice, Springer, vol. 124(1), pages 135-156, July.
    4. Aggey Semenov & Hector Perez Saiz, 2014. "The Effect Of Campaign Contributions On State Banking Regulation And Bank Expansion In U.S," 2014 Meeting Papers 1265, Society for Economic Dynamics.
    5. Juan Carlos Berganza, 2000. "Politicians, voters and electoral processes: an overview," Investigaciones Economicas, Fundación SEPI, vol. 24(3), pages 501-543, September.
    6. Potters, Jan & Sloof, Randolph, 1996. "Interest groups: A survey of empirical models that try to assess their influence," European Journal of Political Economy, Elsevier, vol. 12(3), pages 403-442, November.
    7. Stephen Ansolabehere & John M. de Figueiredo & James M. Snyder Jr, 2003. "Why is There so Little Money in U.S. Politics?," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 105-130, Winter.
    8. Ansolabehere, Stephen & De Figueiredo, John M. & Snyder, James M., 2003. "Are Campaign Contributions Investment in the Political Marketplace or Individual Consumption? Or "Why Is There So Little Money in Politics?"," Working papers 4272-02, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    9. Bils, Peter & Duggan, John & Judd, Gleason, 2021. "Lobbying and policy extremism in repeated elections," Journal of Economic Theory, Elsevier, vol. 193(C).
    10. Persson, Torsten & Tabellini, Guido, 2002. "Political economics and public finance," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 24, pages 1549-1659, Elsevier.
    11. Balles, Patrick & Matter, Ulrich & Stutzer, Alois, 2018. "Special Interest Groups Versus Voters and the Political Economics of Attention," Economics Working Paper Series 1813, University of St. Gallen, School of Economics and Political Science.
    12. Thomas Bassetti & Filippo Pavesi, 2017. "Electoral Contributions And The Cost Of Unpopularity," Economic Inquiry, Western Economic Association International, vol. 55(4), pages 1771-1791, October.
    13. Atif Mian & Amir Sufi & Francesco Trebbi, 2010. "The Political Economy of the US Mortgage Default Crisis," American Economic Review, American Economic Association, vol. 100(5), pages 1967-1998, December.
    14. Jordan Rappaport, 1997. "Extremist Funding, Centrist Voters, and Candidate Divergence," Research in Economics 97-06-059e, Santa Fe Institute.
    15. Mariano Tommasi & Matias Iaryczower & Pablo T. Spiller, 2004. "Judicial Lobbying: The Politics of Labor Law, Constitutional Interpretation. Argentina 1935-1998," Working Papers 73, Universidad de San Andres, Departamento de Economia, revised Jun 2004.
    16. Ramirez Carlos D., 2011. "The $700 Billion Bailout: A Public-Choice Interpretation," Review of Law & Economics, De Gruyter, vol. 7(1), pages 291-318, November.
    17. Ganesh Manjhi & Meeta Keswani Mehra, 2019. "A Dynamic Analysis of Special Interest Politics and Electoral Competition," Dynamic Games and Applications, Springer, vol. 9(1), pages 142-164, March.
    18. Hideo Konishi & Chen-Yu Pan, 2020. "Silent promotion of agendas: campaign contributions and ideological polarization," Public Choice, Springer, vol. 182(1), pages 93-117, January.
    19. Alexander Fink, 2017. "Donations to Political Parties: Investing Corporations and Consuming Individuals?," Kyklos, Wiley Blackwell, vol. 70(2), pages 220-255, May.
    20. Deniz Igan & Prachi Mishra & Thierry Tressel, 2012. "A Fistful of Dollars: Lobbying and the Financial Crisis," NBER Macroeconomics Annual, University of Chicago Press, vol. 26(1), pages 195-230.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:pubcho:v:155:y:2013:i:3:p:211-228. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.