Research

Abstract  We study lobbying in a setting in which decision-makers share resources in a network. Two opposing interest groups choose which decision-maker they want to target with their resource provision, and their decision depends on the decision-makers' ideologies as well as the network structure. We characterize the lobbying strategies in various network settings and show that a higher resource flow as well as homophily reinforce decision-makers' ideological bias. We highlight that competing lobbyists' efforts do not neutralize each other and their payoffs and competitive advantages depend on the networks they face. Our findings are consistent with empirically established lobbying activities.

Supplemental Appendix

Abstract This study explains the observed repeated personal interactions between lobbyists and policymakers. The analysis uses a dynamic model of commercial lobbying in which citizens may hire lobbyists to present policy proposals on their behalf to policymakers. It is shown that repeated interactions with lobbyists simplify a policymaker’s information problem in the presence of unverifiable information provision and allow a solution to their contracting problem. The welfare implications of these interactions depend on whether the policymakers’ information or contracting problem predominates. Further, the policymaker’s information problem and financial contributions may actually improve social welfare in comparison to the full information outcome.

Parts of this paper were absorbed in Repeated Lobbying by Commercial Lobbyists and Special Interests, Economic Inquiry 2017.

Abstract  We analyze the institutional determinants of U.S. financial market regulation with a general model of the policy-making process in which legislators delegate  authority to regulate financial risk at both the firm and systemic levels. The model explains changes in U.S. financial regulation leading up to the financial crisis. We test the predictions of the general model with a novel, comprehensive data set of financial regulatory laws enacted specifically between 1950 and 2009. The theoretical and empirical analysis finds that economic and political factors impact Congress' decision to delegate regulatory authority to executive agencies, which in turn impacts the stringency of financial market regulation, and our estimation results indicate that political factors may have been stronger and resulted in inefficiencies. 

Abstract  We consider the strategic considerations inherent in legislative subsidies and develop an informational lobbying model with costly policy reforms. In contrast to other models of informational lobbying we focus on the implications of a policymaker's and a lobby's resource constraints for lobbying activities. We allow both a policymaker and a lobby to gather information, and each can either fund or subsidize policy making. Our analysis highlights that legislative subsidies are both chosen strategically by lobbyists, and strategically induced by policymakers, dependent upon the circumstances. These involve which resource constraints bind,  the policymaker's prior beliefs, the salience of policy, and the policymaker's expertise and the lobby's expertise or credibility. We also illustrate when an interest group may lobby a friendly, opposing, or undecided policymaker. Furthermore, we explain how an interest group may strategically waste resources and when informational lobbying and transfers are complements, substitutes, or independent.

Abstract  Using a model of repeated agency, we explain previously unexplained features of the real-world lobbying industry. Lobbying is divided between direct representation by special interests to policymakers, and indirect representation where special interests employ professional intermediaries called commercial lobbyists to lobby policymakers on their behalf. Our analytical structure allows us to explain several trends in lobbying. For example, using the observation that in the U.S. over the last 20 years policymakers have spent an increasing amount of their time fundraising as opposed to legislating, we are able to explain why the share of commercial lobbyist activity in total lobbying has risen dramatically and now constitutes over 60% of the total. The key scarce resource in our analysis is policymakers' time. They allocate this resource via implicit repeated agency contracts which are used to incent special interests and commercial lobbyists to provide a mix of financial contributions and information on policy proposals. These implicit agency contracts solve both an information problem in the presence of unverifiable policy information and a contracting problem in the absence of legal enforcement. These repeated relationships, that are often described using the pejorative term cronyism in the popular press, may in certain circumstances be welfare improving. 

Previous working paper: CESifo #5809.

Abstract  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 act as intermediaries on their behalf with policymakers. In our analysis we address two basic questions; what tasks are commercial lobbying firms performing, 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 commercial lobbying firms. Essentially, it is this access to policymakers that commercial 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.

Previous (longer) working paper: CESifo #4110.

Abstract  An income growth pattern is pro-poor if it reduces a (chosen) measure of poverty by more than if all incomes were growing equiproportionately. Inequality reduction is not sufficient for pro-poorness. In this paper, we explore the nexus between pro-poorness, growth and inequality in some detail using simulations involving the displaced lognormal, Singh-Maddala and Dagum distributions. For empirically relevant parameter estimates, distributional change preserving the functional form of each of these 3-parameter distributions is often either pro-poor and inequality reducing, or pro-rich and inequality exacerbating, but it is also possible for pro-rich growth to be inequality reducing. There is some capacity for each of these distributions to show trickle effects (weak pro-richness) along with inequality-reducing growth, but virtually no possibility of pro-poorness for growth which increases overall inequality. Implications are considered.

 Previous (longer) working paper: ECINEQ #2011-214. 

Abstract  This chapter reviews the literature on commercial lobbying. It places this literature into the context of the broader lobbying literature. Commercial lobbyists work for for-profit organizations that sell their services as intermediaries between policymakers and special interest groups. This intermediation involves the transfer of resources from special interest groups to policymakers. These resources may be information, financial contributions, or direct involvement in legislating or campaigning. Commercial lobbyists’ actions may either complement or substitute for the activities of in-house lobbyists. The incentives faced by commercial lobbyists may be designed either by special interest groups, policymakers, or a combination of the two and depend on the institutional structure within which the actors interact. They may involve problems related to collective action, transaction costs, agency, and repeated games.

Abstract  Dieser Beitrag gibt einen Überblick über die Literatur zu kommerziellen Lobbyagenturen und stellt die Erkenntnisse dieser Arbeiten in den Kontext der weiter gefassten Literatur über Lobbyismus. Kommerzielle Lobbyisten arbeiten als gewinnorientierte Unternehmer, die ihre Dienste als Vermittler zwischen politischen Entscheidungsträgern und Interessengruppen anbieten. Diese Vermittlung beinhaltet den Transfer von Ressourcen von Interessengruppen an politische Entscheidungsträger. Bei diesen Ressourcen kann es sich um Informationen, Zuwendungen oder eine direkte Beteiligung an der Gestaltung von Gesetzen oder Wahlkampagnen handeln. Die Aktivitäten kommerzieller Lobbyisten können die Tätigkeiten interner Lobbyisten entweder ergänzen oder ersetzen. Die Anreize, mit denen sich kommerzielle Lobbyisten konfrontiert sehen, können entweder von Interessengruppen, politischen Entscheidungsträgern oder einer Kombination aus beidem gestaltet werden und hängen von der institutionellen Struktur ab, innerhalb derer die Akteure interagieren. Dabei können Probleme im Zusammenhang mit kollektivem Handeln, Transaktionskosten, Prinzipal-Agenten-Verhältnissen und wiederholten Spielen auftreten. 

To date, theoretical models of lobbying have assumed a simple transaction between policymakers and lobbyists and have not yet explained why lobbying is largely conducted through repeated interactions between policymakers and lobbyists, why the lobbying industry is so focused on building relationships, and what value is added by lobbying intermediaries. Recent empirical research has begun to highlight the importance of relationships to the lobbying industry and how the daily practice of lobbying is focused on perfecting and implementing the art of relationship building. Belying the reality that relationships are central to lobbying, little work has been done to explain and model the lobbying industry’s fixation on relationships and reputation, or to address the simple fact that political access is a key scarce resource. Given the exponential growth in lobbying firms, which rely heavily on relationships, understanding the particularities of the relationship market has become increasingly important.