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How a Firm Can Induce Legislators to Adopt a Bad Policy

  • Matthias Dahm
  • Robert Dur
  • Amihai Glazer

This paper shows why a majority of legislators may vote for a policy that benefits a firm but harms all legislators. The firm may induce legislators to support the policy by suggesting that it is more likely to invest in a district whose voters or representative support the policy. In equilibrium, no one vote may be decisive, so each legislator who seeks the firm’s investment votes for the policy, though all legislators would be better off if they all voted against the policy. Moreover, when votes reveal information about the district, the firm’s implicit promise or threat can be credible. Unlike influence mechanisms based on contributions or bribes, the behavior considered is time consistent and in line with the observed small spending by special interests.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2012/wp-cesifo-2012-04/cesifo1_wp3788.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3788.

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Date of creation: 2012
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Handle: RePEc:ces:ceswps:_3788
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  1. Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers 21-92, Tel Aviv.
  2. Grossman, Gene & Helpman, Elhanan, 2005. "A Protectionist Bias in Majoritarian Politics," CEPR Discussion Papers 5238, C.E.P.R. Discussion Papers.
  3. Thomas Schwartz, 1987. "Your vote counts on account of the way it is counted: An institutional solution to the paradox of not voting," Public Choice, Springer, vol. 54(2), pages 101-121, January.
  4. Faccio, Mara & Parsley, Davie, 2007. "Sudden Deaths: Taking Stock of Geographic Ties," MPRA Paper 6042, University Library of Munich, Germany.
  5. Matthias Dahm & Nicolás Porteiro, 2006. "Informational Lobbying under the Shadow of Political Pressure," Working Papers 06.14, Universidad Pablo de Olavide, Department of Economics.
  6. Luis Corchón & Matthias Dahm, 2010. "Foundations for contest success functions," Economic Theory, Springer, vol. 43(1), pages 81-98, April.
  7. Luis Corchon & Matthias Dahm, 2009. "Welfare maximizing contest success functions when the planner cannot commit," Economics Working Papers we097343, Universidad Carlos III, Departamento de Economía.
  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. José Alcalde & Matthias Dahm, 2011. "On The Complete Information First-Price Auction And Its Intuitive Solution," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 13(03), pages 353-361.
  10. Morten Bennedsen & Sven E. Feldmann, 2000. "Informational Lobbying and Political Contributions," CIE Discussion Papers 2000-02, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  11. B. Douglas Bernheim & Antonio Rangel & Luis Rayo, 2006. "The Power of the Last Word in Legislative Policy Making," Econometrica, Econometric Society, vol. 74(5), pages 1161-1190, 09.
  12. Matthias Dahm & Nicolás Porteiro, 2008. "Side Effects of Campaign Finance Reform," Journal of the European Economic Association, MIT Press, vol. 6(5), pages 1057-1077, 09.
  13. Carolyn L. Evans, 2009. "A Protectionist Bias In Majoritarian Politics: An Empirical Investigation," Economics and Politics, Wiley Blackwell, vol. 21(2), pages 278-307, 07.
  14. Raff, Horst & Srinivasan, Krishna, 1998. "Tax incentives for import-substituting foreign investment:: Does signaling play a role?," Journal of Public Economics, Elsevier, vol. 67(2), pages 167-193, February.
  15. Lapp, Miriam, 1999. " Incorporating Groups into Rational Choice Explanations of Turnout: An Empirical Test," Public Choice, Springer, vol. 98(1-2), pages 171-85, January.
  16. 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.
  17. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-51, November.
  18. Lohmann, Susanne, 1995. " Information, Access, and Contributions: A Signaling Model of Lobbying," Public Choice, Springer, vol. 85(3-4), pages 267-84, December.
  19. Andrew Yates, 2011. "Winner-pay contests," Public Choice, Springer, vol. 147(1), pages 93-106, April.
  20. Milyo Jeffrey & Primo David & Groseclose Timothy, 2000. "Corporate PAC Campaign Contributions in Perspective," Business and Politics, De Gruyter, vol. 2(1), pages 1-15, April.
  21. 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.
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