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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 & Helpman, Elhanan, 1993. "Protection for Sale," CEPR Discussion Papers 827, C.E.P.R. Discussion Papers.
  2. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-51, November.
  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. Matthias Dahm & Nicolás Porteiro, 2006. "Informational Lobbying under the Shadow of Political Pressure," Working Papers 06.14, Universidad Pablo de Olavide, Department of Economics.
  5. Vijay Krishna & John Morgan, 2001. "A Model Of Expertise," The Quarterly Journal of Economics, MIT Press, vol. 116(2), pages 747-775, May.
  6. Morten Bennedsen & Sven E. Feldmann, 2000. "Lobbying Legislatures," CIE Discussion Papers 2000-04, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  7. 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.
  8. Patrick Bolton & Mathias Dewatripont, 2005. "Contract Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262025760, June.
  9. Groll, Thomas & Ellis, Christopher J., 2012. "A Simple Model of the Commercial Lobbying Industry," MPRA Paper 36168, University Library of Munich, Germany.
  10. Bennedsen, Morten & Feldmann, Sven E., 2000. "Informational Lobbying And Political Contributions," Working Papers 08-2000, Copenhagen Business School, Department of Economics.
  11. Jean-Jacques LAFFONT & Jean TIROLE, 1990. "The Politics of Government Decision-Making : a Theory of Regulatory Capture," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9004, Université de Lausanne, Faculté des HEC, DEEP.
  12. Sanford Grossman & Oliver Hart, . "An Analysis of the Principal-Agent Problem," Rodney L. White Center for Financial Research Working Papers 15-80, Wharton School Rodney L. White Center for Financial Research.
  13. Potters, Jan & van Winden, Frans, 1992. " Lobbying and Asymmetric Information," Public Choice, Springer, vol. 74(3), pages 269-92, October.
  14. Paul Milgrom & John Roberts, 1986. "Relying on the Information of Interested Parties," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 18-32, Spring.
  15. HOLMSTROM, Bengt, . "Moral hazard and observability," CORE Discussion Papers RP -379, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  16. 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.
  17. Lohmann, Susanne, 1995. " Information, Access, and Contributions: A Signaling Model of Lobbying," Public Choice, Springer, vol. 85(3-4), pages 267-84, December.
  18. Gromb, Denis & Martimort, David, 2007. "Collusion and the organization of delegated expertise," Journal of Economic Theory, Elsevier, vol. 137(1), pages 271-299, November.
  19. 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.
  20. 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.
  21. repec:ner:tilbur:urn:nbn:nl:ui:12-223989 is not listed on IDEAS
  22. Thomas Groll & Christopher J. Ellis, 2013. "Dynamic Commercial Lobbying," CESifo Working Paper Series 4114, CESifo Group Munich.
  23. 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.
  24. Jordi Blanes i Vidal & Mirko Draca & Christian Fons-Rosen, 2010. "Revolving Door Lobbyists," CEP Discussion Papers dp0993, Centre for Economic Performance, LSE.
  25. 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.
  26. 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.
  27. Austen-Smith, David, 1994. "Strategic Transmission of Costly Information," Econometrica, Econometric Society, vol. 62(4), pages 955-63, July.
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