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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
File Function: First version, 2009
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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. Morten Bennedsen & Sven E. Feldmann, 2002. "Lobbying Legislatures," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 919-948, August.
  2. Riezman, R. & Wilson, J.D., 1993. "Political Reform and Trade Policy," Working Papers 93-09, University of Iowa, Department of Economics.
  3. Dominique Demougin & Claude Fluet, 2007. "Rules of Proof, Courts, and Incentives," CESifo Working Paper Series 2014, CESifo Group Munich.
  4. Baye, Michael R & Kovenock, Dan & de Vries, Casper G, 1993. "Rigging the Lobbying Process: An Application of the All-Pay Auction," American Economic Review, American Economic Association, vol. 83(1), pages 289-94, March.
  5. 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.
  6. Andrea Prat, 2002. "Campaign Advertising and Voter Welfare," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 999-1017.
  7. Bull, Jesse & Watson, Joel, 2000. "Evidence Disclosure and Verifiability," University of California at San Diego, Economics Working Paper Series qt6th0060j, Department of Economics, UC San Diego.
  8. Allan Drazen & Nuno Limão & Thomas Stratman, 2004. "Political Contribution Caps and Lobby Formation: Theory and Evidence," NBER Working Papers 10928, National Bureau of Economic Research, Inc.
  9. 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.
  10. Arieh Gavious & Benny Moldovanu & Aner Sela, 2002. "Bid Costs and Endogenous Bid Caps," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 709-722, Winter.
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