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Political Competition with Campaign Contributions and Informative Advertising

  • Stephen Coate

This paper presents a model of political competition with campaign contributions and informative political advertising. Policy-motivated parties compete by selecting candidates and interest groups provide contributions to enhance the electoral prospects of like-minded candidates. Contributions are used to finance advertising campaigns that provide voters with information about candidates' ideologies. The model embodies rational behavior on the part of all actors, is analytically tractable, and has a unique equilibrium. The paper uses the model to analyze the welfare economics of contribution limits. Such limits are shown to redistribute welfare from moderate voters to interest group members. They may or may not raise aggregate welfare.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8693.

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Date of creation: Dec 2001
Date of revision:
Publication status: published as Stephen Coate, 2004. "Political Competition with Campaign Contributions and Informative Advertising," Journal of the European Economic Association, MIT Press, vol. 2(5), pages 772-804, 09.
Handle: RePEc:nbr:nberwo:8693
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  1. Ignacio Ortuno-Ortin & Christian Schultz, 2005. "Public Funding of Political Parties," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(5), pages 781-791, December.
  2. Persson, Torsten & Tabellini , Guido, 1997. "Political Economics and Macroeconomic Policy," Seminar Papers 630, Stockholm University, Institute for International Economic Studies.
  3. Prat, Andrea, 1999. "Campaign Advertising and Voter Welfare," CEPR Discussion Papers 2152, C.E.P.R. Discussion Papers.
  4. Martin J. Osborne & Al Slivinski, 1996. "A Model of Political Competition with Citizen-Candidates," The Quarterly Journal of Economics, Oxford University Press, vol. 111(1), pages 65-96.
  5. Besley, Timothy J. & Coate, Stephen, 2001. "Issue Unbundling via Citizens' initiatives," CEPR Discussion Papers 2857, C.E.P.R. Discussion Papers.
  6. Tim Besley & Stephen Coate, . ""An Economic Model of Representative Democracy''," CARESS Working Papres 95-02, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  7. Potters, Jan & Sloof, Randolph & van Winden, Frans, 1997. "Campaign expenditures, contributions and direct endorsements: The strategic use of information and money to influence voter behavior," European Journal of Political Economy, Elsevier, vol. 13(1), pages 1-31, February.
  8. Prat, A., 1998. "Campaign Spending with Office-Seeking Politicians, Rational Voters and Multiple Lobbies," Discussion Paper 1998-123, Tilburg University, Center for Economic Research.
  9. Nelson, Phillip, 1976. "Political Information," Journal of Law and Economics, University of Chicago Press, vol. 19(2), pages 315-36, August.
  10. David Austen-Smith, 1987. "Interest groups, campaign contributions, and probabilistic voting," Public Choice, Springer, vol. 54(2), pages 123-139, January.
  11. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August.
  12. Gene M. Grossman & Elhanan Helpman, 1996. "Electoral Competition and Special Interest Politics," Review of Economic Studies, Oxford University Press, vol. 63(2), pages 265-286.
  13. Gene M. Grossman & Carl Shapiro, 1984. "Informative Advertising with Differentiated Products," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 63-81.
  14. Rebecca Morton & Charles Cameron, 1992. "Elections And The Theory Of Campaign Contributions: A Survey And Critical Analysis," Economics and Politics, Wiley Blackwell, vol. 4(1), pages 79-108, 03.
  15. Roger Congleton, 1986. "Rent-seeking aspects of political advertising," Public Choice, Springer, vol. 49(3), pages 249-263, January.
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