Hall of Mirrors: Corporate Philanthropy and Strategic Advocacy

Information is central to designing effective policy and policymakers often rely on competing interests to separate useful from biased information. In this paper we show how this logic of virtuous competition can break down, using a new and comprehensive dataset on U.S. federal regulatory rulemaking for 2003-2016. For-profit corporations and non-profit entities are active in the rule-making process and are arguably expected to provide independent viewpoints. Policymakers, however, may be less than fully aware of the financial ties between some firms and non-profits – grants that are legal and tax-exempt, but hard to trace. We document three patterns which suggest that these grants may distort policy. First, we show that, shortly after a firm donates to a non-profit, that non-profit is more likely to comment on rules on which the firm has also commented. Second, when a firm comments on a rule, the comments by non-profits that recently received grants from the firm’s foundation are systematically closer in content to the firm’s own comments, relative to comments submitted by other non-profits. Third, the final rule’s discussion by a regulator is more similar to the firm’s comments on that rule when the firm’s recent grantees also commented on it. We discuss two interpretations of the evidence. While the negative welfare consequences of a “comments-for-sale†scenario are immediate, we show that, even if corporate grants’ only effect is to relax the grantee’s budget constraint, this can also lead to distorted policy making.