Judicial selection and production efficiency: The role of campaign finance

This paper studies the effect of campaign finance on judicial selection and production efficiency. Using the Supreme Court’s surprise verdict in the Citizens United v. FEC case in 2010, which generates exogenous variation in campaign finance laws, I document that the removal of such bans led to a 33% ($ 200,000) increase in the average electoral expenditure of judicial candidates and increased competition in State Supreme Court judge elections. The judicial bench also becomes populated with more business-friendly judges. State courts decide the majority of labor, contract, and administrative law disputes, and the State Supreme Court has the power to set legal precedents. Therefore, shifts in the judicial bench of the State Supreme Court affect the legal environment and the contracting choices of firms and labor. I document that labor productivity measured as value added per worker increased by 8% in treated states with judicial elections. For sectors more reliant on contract enforcement, labor productivity is higher in states with judicial elections. Overall, removing constraints on electoral finance improves competition in judicial elections, the judicial bench becomes more business-friendly, and improves production efficiency due to the alleviation of contract-enforcement frictions