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Pay-to-Play Politics: Informational lobbying and campaign finance reform when contributions buy access

  • Christopher Cotton

    ()

    (Department of Economics, University of Miami)

We develop a game-theoretic model of lobbying in which contributions buy access to politicians. The analysis considers the claim that the rich are better off because they have more access to politicians, and that contribution limits reduce the rich-interest advantage, resulting in less-skewed policy. We show that these arguments do not hold when the politician is strategic in granting access. In equilibrium, rich interest groups receive greater access to the politician, but they are also the targets of politician rent seeking. Relatively poor groups tend to be better off in equilibrium. Contribution limits decrease the politician’s ability to extract rents from interest groups, which improves the payoffs of rich interests, and can result in worse policy. Finally, the paper provides a novel (and theoretically justified) argument in favor of contribution limits: they can encourage lobby formation, which results in more evidence disclosure and better policy.

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File URL: http://www.bus.miami.edu/_assets/files/faculty-and-research/academic-departments/eco/eco-working-papers/2010/wp-2010-22-Pay-to-Play-Politics.pdf
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Paper provided by University of Miami, Department of Economics in its series Working Papers with number 2010-22.

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Length: 30 pages
Date of creation: Jun 2010
Date of revision:
Publication status: Forthcoming: Working Paper
Handle: RePEc:mia:wpaper:2010-22
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Web page: http://www.bus.miami.edu/faculty-and-research/academic-departments/economics/index.html

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  1. Bull, Jesse & Watson, Joel, 2002. "Evidence Disclosure and Verfiability," University of California at San Diego, Economics Working Paper Series qt19p7z2gm, Department of Economics, UC San Diego.
  2. Gavious, Arieh & Moldovanu, Benny & Sela, Aner, 2000. "Bid Costs and Endogenous Bid Caps," Sonderforschungsbereich 504 Publications 01-19, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  3. Bennedsen, Morten & Feldmann, Sven E., 2000. "Lobbying Legislatures," Working Papers 07-2000, Copenhagen Business School, Department of Economics.
  4. Prat, Andrea, 1999. "Campaign Advertising and Voter Welfare," CEPR Discussion Papers 2152, C.E.P.R. Discussion Papers.
  5. Drazen, Allan & Limao, Nuno & Stratmann, Thomas, 2007. "Political contribution caps and lobby formation: Theory and evidence," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 723-754, April.
  6. Baye, M.R. & Kovenock, D. & De Vries, C.G., 1991. "Rigging The Lobbying Process: An Application Of The All- Pay Auction," Purdue University Economics Working Papers 1002, Purdue University, Department of Economics.
  7. Riezman, R. & Wilson, J.D., 1993. "Political Reform and Trade Policy," Working Papers 93-09, University of Iowa, Department of Economics.
  8. 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.
  9. Dominique Demougin & Claude Fluet, 2006. "Rules of Proof, Courts, and Incentives," Cahiers de recherche 0633, CIRPEE.
  10. Cotton, Christopher, 2009. "Should we tax or cap political contributions? A lobbying model with policy favors and access," Journal of Public Economics, Elsevier, vol. 93(7-8), pages 831-842, August.
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