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A Simple Model of the Commercial Lobbying Industry

  • Groll, Thomas
  • Ellis, Christopher J.

In this paper we present a model of the behavior of commercial lobbying firms (such as the so-called K-Street lobbyists of Washington, D.C.). In contrast to classical special interest groups, commercial lobbying firms represent a variety of clients and are not directly affected by policy outcomes. They are hired by citizens, or groups of citizens, to advocate on their behalf to policymakers. In our analysis we address two basic questions; why do commercial lobbying firms exist, and what are the implications of their existence for social welfare? We answer the first part of this question by proposing that commercial lobbying firms possess a verification technology that allows them to improve the quality of information concerning the social desirability of policy proposals. This gives policymakers the incentive to allocate their scarce time to lobbying firms. Essentially it is this access to policymakers that lobbying firms sell to their clients. To address the question of social welfare we construct a simple general equilibrium model that includes commercial lobbying firms, and compare the equilibrium obtained under market provision of lobbying services to the first best optimum. We find that the market level of lobbying services can be socially either too large or too small, and characterize when each will be the case.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 36168.

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Date of creation: Jan 2012
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Handle: RePEc:pra:mprapa:36168
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  1. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September.
  2. Patrick Bolton & Mathias Dewatripont, 2005. "Contract Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262025760, June.
  3. Jordi Blanes i Vidal & Mirko Draca & Christian Fons-Rosen, 2012. "Revolving Door Lobbyists," American Economic Review, American Economic Association, vol. 102(7), pages 3731-48, December.
  4. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring.
  5. Thomas Groll & Christopher J. Ellis, 2013. "A Simple Model of the Commercial Lobbying Industry," CESifo Working Paper Series 4110, CESifo Group Munich.
  6. Vijay Krishna & John Morgan, 1999. "A Model of Expertise," Working Papers 154, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
  7. Matthias Dahm & Nicolas Porteiro, 2005. "Informational Lobbying under the Shadow of Political Pressure," Discussion Papers 1409, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. V. Crawford & J. Sobel, 2010. "Strategic Information Transmission," Levine's Working Paper Archive 544, David K. Levine.
  9. Bennedsen Morten & Feldmann Sven E., 2002. "Lobbying and Legislative Organization: The Effect of the Vote of Confidence Procedure," Business and Politics, De Gruyter, vol. 4(2), pages 1-18, August.
  10. repec:ner:tilbur:urn:nbn:nl:ui:12-223989 is not listed on IDEAS
  11. Marianne Bertrand & Matilde Bombardini & Francesco Trebbi, 2011. "Is It Whom You Know or What You Know? An Empirical Assessment of the Lobbying Process," NBER Working Papers 16765, National Bureau of Economic Research, Inc.
  12. Bennedsen, Morten & Feldmann, Sven E., 2000. "Informational Lobbying And Political Contributions," Working Papers 08-2000, Copenhagen Business School, Department of Economics.
  13. Laffont, Jean-Jacques & Tirole, Jean, 1990. "The Politics of Government Decision Making: Regulatory Institutions," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(1), pages 1-31, Spring.
  14. Grossman, Sanford J & Hart, Oliver D, 1983. "An Analysis of the Principal-Agent Problem," Econometrica, Econometric Society, vol. 51(1), pages 7-45, January.
  15. Jordi Blanes i Vidal & Mirko Draca & Christian Fons-Rosen, 2010. "Revolving Door Lobbyists," CEP Discussion Papers dp0993, Centre for Economic Performance, LSE.
  16. Austen-Smith, David, 1994. "Strategic Transmission of Costly Information," Econometrica, Econometric Society, vol. 62(4), pages 955-63, July.
  17. Laffont, Jean-Jacques & Tirole, Jean, 1991. "The Politics of Government Decision-Making: A Theory of Regulatory Capture," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1089-127, November.
  18. Paul R. Milgrom & John Roberts, 1985. "Relying on the Information of Interested Parties," Cowles Foundation Discussion Papers 749, Cowles Foundation for Research in Economics, Yale University.
  19. Besley, Timothy & Coate, Stephen, 2001. "Lobbying and Welfare in a Representative Democracy," Review of Economic Studies, Wiley Blackwell, vol. 68(1), pages 67-82, January.
  20. Bernheim, B Douglas & Whinston, Michael D, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 1-31, February.
  21. Bennedsen, Morten & Feldmann, Sven E., 2000. "Lobbying Legislatures," Working Papers 07-2000, Copenhagen Business School, Department of Economics.
  22. Lohmann, Susanne, 1995. " Information, Access, and Contributions: A Signaling Model of Lobbying," Public Choice, Springer, vol. 85(3-4), pages 267-84, December.
  23. Potters, Jan & van Winden, Frans, 1992. " Lobbying and Asymmetric Information," Public Choice, Springer, vol. 74(3), pages 269-92, October.
  24. Christopher Cotton, 2008. "Should We Tax or Cap Political Contributions? A Lobbying Model with Policy Favors and Access," Working Papers 0901, University of Miami, Department of Economics.
  25. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
  26. Thomas Groll & Christopher J. Ellis, 2013. "Dynamic Commercial Lobbying," CESifo Working Paper Series 4114, CESifo Group Munich.
  27. Gromb, Denis & Martimort, David, 2007. "Collusion and the organization of delegated expertise," Journal of Economic Theory, Elsevier, vol. 137(1), pages 271-299, November.
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