IDEAS home Printed from https://ideas.repec.org/p/wpa/wuwpmi/9809003.html
   My bibliography  Save this paper

Caps on Political Lobbying

Author

Listed:
  • Yeon-Koo Che

    (University of Wisconsin - Madison)

  • Ian Gale

    (Georgetown University)

Abstract

The cost of political campaigns in the U.S. has risen substantially in recent years. For example, real spending on congressional election campaigns doubled between 1976 and 1992 (Steven D. Levitt [1995]). There are many reasons why increased campaign spending might be socially harmful. First, increased spending means increased fund-raising, which may keep politicians from their legislative duties.1 Second, a lobbyist who makes a large campaign contribution may have undue influence on electoral outcomes, on the shaping of legislation, or on the outcome of regulatory proceedings.2 That is, the socially preferred candidate or legislation may not prevail. Likewise, a lobbyist involved in a regulatory matter or a competition for a government contract may benefit unduly from a legislator's intervention.3 Third, a perception that campaign contributions purchase influence may lead to increased tolerance of corruption in the private sector. A desire to control campaign spending has spawned many initiatives to limit both campaign contributions and spending, beginning with the passage of the Federal Election Campaign Act (FECA). Political Action Committees (PACs) can contribute at most $5,000 per election to a candidate, while individuals can contribute at most $1,000. (Restrictions have also been put on in- kind contributions, making it more difficult to circumvent these limits.)4 While direct restrictions on campaign spending have proven difficult to implement, recent initiatives aim to impose voluntary spending limits and stricter limits on contributions.5 Despite the existing legislation and the proposals to limit contributions, little is known about the impact of contribution limits on aggregate expenditures. While it is intuitively appealing that aggregate expenditures would drop, we challenge that intuition here. We study a lobbying game and show that a cap on individual lobbyists' expenditures may have the perverse effect of increasing aggregate expenditures and lowering total surplus. This result suggests that a cap on campaign contributions may increase aggregate contributions.6 The next section presents the model and describes the equilibrium when lobbyists are unconstrained. We then solve for the equilibrium when lobbyists face a cap on individual expenditures. When a cap constrains the high-valuation lobbyist, a lobbyist with a lower valuation for the political prize becomes relatively more aggressive. As a consequence, total lobbying expenditures may rise. Since the high-valuation lobbyist's probability of winning the prize drops, the cap reduces total surplus if private and social valuations coincide. Concluding remarks are contained in the final section.

Suggested Citation

  • Yeon-Koo Che & Ian Gale, 1998. "Caps on Political Lobbying," Microeconomics 9809003, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpmi:9809003
    Note: Type of Document - Microsoft Word 97; prepared on IBM PC; to print on HP; pages: 16 ; figures: included
    as

    Download full text from publisher

    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/mic/papers/9809/9809003.ps.gz
    Download Restriction: no

    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/mic/papers/9809/9809003.html
    Download Restriction: no

    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/mic/papers/9809/9809003.doc.gz
    Download Restriction: no

    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/mic/papers/9809/9809003.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    2. Dan Kovenock & Michael R. Baye & Casper G. de Vries, 1996. "The all-pay auction with complete information (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 8(2), pages 291-305.
    3. 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 289-294, March.
    4. Arye L. Hillman & John G. Riley, 1989. "Politically Contestable Rents And Transfers," Economics and Politics, Wiley Blackwell, vol. 1(1), pages 17-39, March.
    5. Poole, Keith T & Romer, Thomas & Rosenthal, Howard, 1987. "The Revealed Preferences of Political Action Committees," American Economic Review, American Economic Association, vol. 77(2), pages 298-302, May.
    6. Hall, Richard L. & Wayman, Frank W., 1990. "Buying Time: Moneyed Interests and the Mobilization of Bias in Congressional Committees," American Political Science Review, Cambridge University Press, vol. 84(3), pages 797-820, September.
    7. Austen-Smith, David, 1995. "Campaign Contributions and Access," American Political Science Review, Cambridge University Press, vol. 89(3), pages 566-581, September.
    8. Wright, John R., 1990. "Contributions, Lobbying, and Committee Voting in the U.S. House of Representatives," American Political Science Review, Cambridge University Press, vol. 84(2), pages 417-438, June.
    9. Helsley, Robert W. & O'Sullivan, Arthur, 1994. "Altruistic voting and campaign contributions," Journal of Public Economics, Elsevier, vol. 55(1), pages 107-119, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cotton, Christopher, 2012. "Pay-to-play politics: Informational lobbying and contribution limits when money buys access," Journal of Public Economics, Elsevier, vol. 96(3), pages 369-386.
    2. Cotton, Christopher, 2015. "Competing for Attention," MPRA Paper 65715, University Library of Munich, Germany.
    3. Brown, Jeffrey R. & Huang, Jiekun, 2020. "All the president's friends: Political access and firm value," Journal of Financial Economics, Elsevier, vol. 138(2), pages 415-431.
    4. 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.
    5. Konrad, Kai A., 2007. "Strategy in contests: an introduction [Strategie in Turnieren – eine Einführung]," Discussion Papers, Research Unit: Market Processes and Governance SP II 2007-01, WZB Berlin Social Science Center.
    6. Ian Gale & Mark Stegeman, 1994. "Exclusion in all-pay auctions," Working Papers (Old Series) 9401, Federal Reserve Bank of Cleveland.
    7. Todd R. Kaplan & Aner Sela, 2008. "Effective Political Contests," Working Papers 0804, Ben-Gurion University of the Negev, Department of Economics.
    8. Christopher Cotton, 2013. "Competing for the Attention of Policymakers," Working Papers 2013-14, University of Miami, Department of Economics.
    9. Emmanuel Dechenaux & Dan Kovenock & Roman Sheremeta, 2015. "A survey of experimental research on contests, all-pay auctions and tournaments," Experimental Economics, Springer;Economic Science Association, vol. 18(4), pages 609-669, December.
    10. Matthias Dahm & Nicolás Porteiro, 2008. "Informational lobbying under the shadow of political pressure," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 30(4), pages 531-559, May.
    11. Segev, Ella & Sela, Aner, 2012. "Multi-Stage Sequential All-Pay Auctions," CEPR Discussion Papers 8949, C.E.P.R. Discussion Papers.
    12. Gil Epstein & Ira Gang, 2007. "Who Is The Enemy?," Defence and Peace Economics, Taylor & Francis Journals, vol. 18(6), pages 469-484.
    13. Marco Faravelli, 2011. "The Important Thing Is Not (Always) Winning but Taking Part: Funding Public Goods with Contests," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 13(1), pages 1-22, February.
    14. Mattozzi, Andrea & Merlo, Antonio, 2015. "Mediocracy," Journal of Public Economics, Elsevier, vol. 130(C), pages 32-44.
    15. Jia, Hao & Skaperdas, Stergios & Vaidya, Samarth, 2013. "Contest functions: Theoretical foundations and issues in estimation," International Journal of Industrial Organization, Elsevier, vol. 31(3), pages 211-222.
    16. Ella Segev & Aner Sela, 2011. "Sequential All-Pay Auctions with Head Starts and Noisy Outputs," Working Papers 1106, Ben-Gurion University of the Negev, Department of Economics.
    17. Einy, Ezra & Haimanko, Ori & Orzach, Ram & Sela, Aner, 2014. "Common-Value All-Pay Auctions with Asymmetric Information and Bid Caps," CEPR Discussion Papers 10173, C.E.P.R. Discussion Papers.
    18. Kyung Hwan Baik & Jong Hwa Lee, 2013. "Endogenous Timing In Contests With Delegation," Economic Inquiry, Western Economic Association International, vol. 51(4), pages 2044-2055, October.
    19. Boyer, Pierre C. & Konrad, Kai A. & Roberson, Brian, 2017. "Targeted campaign competition, loyal voters, and supermajorities," Journal of Mathematical Economics, Elsevier, vol. 71(C), pages 49-62.
    20. Baik, Kyung Hwan, 1998. "Difference-form contest success functions and effort levels in contests," European Journal of Political Economy, Elsevier, vol. 14(4), pages 685-701, November.

    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpmi:9809003. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA). General contact details of provider: https://econwpa.ub.uni-muenchen.de .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.