Lobbying Bureaucrats*

We study how interest group lobbying of the bureaucracy affects policy outcomes and how it changes the legislature's willingness to delegate decision‐making authority to the bureaucracy. We extend the standard model of delegation to account for interest group influence during the implementation stage of policy. We analyze how the decision to delegate changes when the bureaucratic agent is subject to external influence. The optimal degree of delegation as well as the extent to which interest groups influence policy outcomes differ depending on whether the system of government is characterized by unified or divided control. The result is a comparative theory of bureaucratic lobbying.     

The informational effects of competition and collusion in legislative politics

We use a mechanism design approach to study the organization of interest groups in an informational model of lobbying. Interest groups influence the legislature only by communicating private information on their preferences and not by means of monetary transfers. Interest groups have private information on their ideal points in a one-dimensional policy space and may either compete or adopt more collusive behaviors. Optimal policies result from a trade-off between imposing rules which are non-responsive to the groups' preferences and flexibility that pleases groups better. Within a strong coalition, interest groups credibly share information which facilitates communication of their joint interests, helps screening by the legislature and induces flexible policies responsive to the groups' joint interests (an informativeness effect). Competing interest groups better transmit information on their individual preferences (a screening effect). The socially and privately optimal organization of lobbying favors competition between groups only when their preferences are not too congruent with those of the legislature. With more congruence, a strong coalition is preferred. Finally, within a weak coalition, interest groups must design incentive compatible collusive mechanisms to share information. Such weak coalitions are always inefficient.     

Strategic restraint in contests

Economic policy is modelled as the outcome of a (political) game between two interest groups. The possible ex-post (realized) outcomes in the game correspond to the proposed policies. In the literature policy proposals are exogenous. We extend such games by allowing the endogenous determination of the proposed policies. In a first stage the groups decide which policy to lobby for and then, in a second stage, engage in a contest over the proposed policies. Our main result is that competition over endogenously determined policies induces strategic restraint that reduces polarization and, in turn, wasteful lobbying activities.     

INTEREST GROUPS, INFLUENCE AND WELFARE

This paper examines the social costs and benefits of special interest group political influence activities. It is commonly recognized that, to the extent that such activities induce legislators to choose policies that favor the interest group at the expense of society at large, they can reduce welfare. It may also be the case, however, that lobbying can convey information held by interest groups to policy-makers. When costless announcements would not be credible, interest groups can signal their private information through costly influence activities. To the extent that this information enables governments to choose better policies, lobbying can enhance welfare. A simple game between a special interest group and a policy-maker that captures this tradeoff between the distortionary costs and the informational benefits of political influence activities is developed. Welfare properties of the equilibria are analyzed, and conditions are derived under which social welfare is greater when lobbying occurs than it would be if lobbying were prohibited. In conclusion, the phenomenon analyzed in this paper is related to Bhagwati's taxonomy of DUP activities.     

Interest Group Lobbying and the Delegation of Policy Authority

In a signalling model of lobbying the politicians' decision whether to delegate policy authority and an interest group's choice between lobbying politicians or bureaucrats are investigated. Only bureaucrats are able to assess policy-relevant information coming from the interest group, but their interests may differ from those of politicians. In equilibrium politicians weigh the benefits of an informed policy decision against bureaucratic drift. We obtain that delegation occurs only when the bureaucracy is not too much biased and when the stakes of the interest group are not too high . Still, politicians sometimes prefer a biased bureaucracy and the interest group to have a larger stake. The model also predicts that interest groups typically lobby politicians to further delegation.     

Environmental policy and lobbying in small open economies

This paper analyzes consequences of lobby group activity for policy outcomes in economies with transboundary pollution and international environmental policies. International environmental policies are here characterized as pollution taxes determined in a negotiation between two countries. The optimal pollution taxes are characterized and comparative statics are carried out to increase the understanding of mechanisms underlying pollution taxes in the specified setup. It is found, among other things, that the presence of local lobbying may decrease, as well as increase pollution taxes - depending on, e.g. an assumption of symmetry.     

Globalization, Lobbying, and International Environmental Governance

Globalization may require supranational coordination of environmental policies to prevent strategic policy competition weakening environmental standards. This raises concerns about a democratic deficit at the supranational level, and the possibility of capture by special interest groups. The authors develop a model in which environmental policy can be set at the national or supranational level. Governments at each level act in the interests of the group they represent, and interest groups lobby to influence the probability of getting their type of government elected. Using asymmetries in lobbying costs, the authors analyze the effects of a democratic deficit and differential access to influence by different interest groups on the welfare of groups and nations. The paper shows: (i) asymmetries may have unexpected effects; (ii) asymmetries have greater effect when policy is set at the national rather than supranational level; and (iii) despite asymmetries groups and nations are better off when policy is coordinated at the supranational level.     

To Ban or Not to Ban: Foreign Lobbying and Cross‐National Externalities

This paper studies the costs and benefits of foreign lobbying. We show how and when foreign lobbying can help internalize cross‐national externalities. We argue that this is an often overlooked benefit of foreign lobbying. We also study under what conditions a constitutional rule banning foreign lobbying is in the national interest of a country. A key factor in this calculus is whether the interests of foreign lobby groups and domestic unorganized groups coincide or not. We illustrate the logic with examples from trade policy and environmental regulation.     

Competition,benchmarking, and electoral success: Evidence from 69 years of the German Bundestag

The German electoral system ensures that there is always at least one federal legislator per constituency. This legislator can face competition from additionally elected competitors to the Bundestag from precisely the same constituency. The existence of several legislators per constituency allows voters to benchmark their quality against each other. We analyze the causal impact of having more elected competitors from the same constituency on legislators’ personal success versus the success of their parties. Our data cover the legislative terms in the German Bundestag and federal elections in the period 1953–2021. In our analysis, we rely on exogenous variation in elected competitors by investigating changes induced by legislators who leave the Bundestag during the legislative period and their respective replacement candidates as instrumental variables. We find that legislators are less successful in elections when they are exposed to elected competitors from the same constituency. The results suggest that benchmarking possibilities are relevant for voters to evaluate their representatives.     

International emissions trading in a political economy

We examine whether the international emissions trading (IET) scheme can reduce global emissions in a political economy framework. Countries act noncooperatively when choosing the tradable emission permits and the environmental tax. The formulation of environmental policies is influenced by interest groups. Our results show that the effect of IET on global emissions depends crucially on which policies are influenced by lobbying activities. In the case where only environmental taxes are influenced by lobbying, IET tends to reduce global emissions when the capitalists’ political power is strong and, surprisingly, when the environmentalists’ political power is weak.     

Collective vs. individual lobbying

This paper presents a menu-auction model in which firms lobby the government to make an environmental regulation less burdensome. In this lobbying game, industrial interests are opposed by an environmental interest group. We compare political outcomes under two institutional arrangements. In the first, firms must join an organization that represents the interests of the industry. In the second, firms would lobby the government individually. The two arrangements result in strikingly different equilibrium outcomes. Only a small fraction of firms join the lobby group under collective lobbying, but all firms participate in lobbying activities when there is no such group. Thus, an attempt by firms to solve the apparent collective action problem through coordination would effectively backfire. The reason is that coordination among firms would increase the leverage available to the government, to demand high political contributions. We also evaluate the desirability of the two lobbying regimes from the private perspective of individual firms, and from the perspective of society as a whole. This permits us to evaluate possible restrictions on lobbying activities.     

The Congressional budget process,aggregate spending,and statutory budget rules

This paper compares the Congressional budget process (instituted in 1974) and the piecemeal appropriations process that preceded it. Previous theoretical analysis using spatial models of legislator preferences finds no systematic difference in relative spending levels under the two regimes. This paper instead uses a model of interest group lobbying. A legislature determines spending on a national public good and on subsidies to sector-specific interest groups. In the “appropriations process,” the Appropriations Committee proposes a budget that, because of interest group influence, involves overspending on subsidies. In the “budget process,” the Budget Committee proposes an aggregate level of spending (the budget resolution); then, the Appropriations Committee proposes a budget. A free rider problem among the interest groups inhibits the lobbying of the Budget Committee to increase the aggregate budget. If each group is sufficiently small, it takes the budget resolution as given, and lobbies the Appropriations Committee. Aggregate spending is lower and social welfare is higher under the budget process; however, provision of the national public good is suboptimal. The paper also analyzes statutory budget rules that limit spending levels, but can be revised by a simple majority vote. Here, the free rider problem prevents the groups from securing the required changes to budget rules.     

Dynamic legislative decision making when interest groups control the agenda

We consider dynamic decision making in a legislature, in which in each period legislators vote between the status quo (previous period?s policy) and a new bill. However, the agenda formation process is captured by interest groups, that is, the new bill on the agenda is determined by an all-pay auction among these groups. We show that convergence to the median voter of the legislature arises if interest groups are patient enough but not necessarily otherwise. We characterize the bound on the speed of convergence in a family of stationary equilibria in which policy bounces between right-wing and left-wing policies. We also show that convergence may be faster if organized interest groups represent only one side of the policy space, e.g., when only business and not consumer interests are organized.     

Fiscal federalism and lobbying

Which government functions should be decentralized (resp. centralized) once lobbying behavior is taken into account? We find that the answer largely depends on how the interests of the regional lobbies are positioned with respect to the function to be decentralized (resp. centralized). When regional lobbies have conflicting interests, then lobbying is less damaging for social welfare under centralization than under decentralization. On the contrary, when regional lobbies have aligned interests, then lobbying is less damaging for social welfare under decentralization, provided that policy spillovers on the non-organized groups are not too strong.     

Adjustments in Different Government Systems

This paper develops a model in which agents have a conflict of interest over what instrument to use for policy adjustment in response to shocks. Three different government systems are analyzed: cabinet systems, in which one decision-maker has full control over adjustment policies; consensus systems, in which adjustment policies must be agreed upon by all agents; and checks-and-balances systems, in which one agent decides what instrument should be used for adjustment, but the remaining agents may veto its use. All three systems may lead to inefficient policies. The cabinet system adjusts too often. The other systems may fail to adjust when adjustment is optimal. The relative performance of the three systems depends on the degree of political fragmentation and the size distribution of shocks.     

Foreign aid preferences and perceptions in donor countries

We present original survey data on preferences for foreign aid in 24 donor countries from 2005 to 2008. On publicly-funded foreign aid (Official Development Assistance, or ODA), we find patterns that are consistent with a standard model of democratic policy formation, in which donations are treated as a pure public good. Controlling for perceptions of current ODA, we show that individual preferences for ODA are (i) negatively correlated with relative income within a country-year; and (ii) positively correlated with inequality at the country level. We extend the analysis to explain variation in the gap between desired aid and actual ODA, arguing that lobbying by high-income special interest groups can divert resources away from the median voter’s preferred level of aid. Consistent with this, we observe that ODA is significantly lower where policymakers are more susceptible to lobbying. Finally, we present a novel test of competing “crowding out” hypotheses. Self-reported private aid donations are negatively correlated with actual ODA, and positively correlated with perceived ODA. This finding is consistent with an emerging argument in the literature, whereby ODA crowds out private aid by enabling charities to forego fundraising activities and crowds in private aid through a signaling channel.     

Strategic compromise,policy bundling and interest group power: Theory and evidence on education policy

Policy reforms are often multifaceted. In the rent-seeking literature policies are usually taken as one-dimensional. This paper models policy formation using a political contest with endogenous policy proposals containing two dimensions, e.g. access and quality of education. The two dimensions provide an opportunity to trade off one policy over another to make the lobbying opposition less aggressive. In a first stage, the government proposes a reform over the two policies, and in a second stage engages in a contest with an interest group over the enactment of the proposed reform. As a result, the government makes a compromise, under-proposing in the policy the interest group opposes and over-proposing in the policy the interest group desires. Effectively, there will be strategic bundling of desired policies with undesired ones in an attempt to increase enactment probability and overall utility. We study this prediction empirically using a newly complied dataset on education legislation in the states of California, Illinois and Texas. Results suggest that stronger opposition is associated with less quality reforms. Moreover, as predicted by the model, when bundling access reforms together with quality, the negative effect is counteracted.     

Join hands or walk alone? Evidence on lobbying for trade policy in India

Using primary evidence for 146 Indian manufacturing firms, I examine single and dual lobbying strategies for trade policy influence, and the factors driving firm's choice of these strategies. Firms can adopt a single strategy, by lobbying collectively as a group (Join Hands), or lobbying individually as a firm (Walk Alone). Firms can also adopt a dual strategy, that is, a combination of collective and individual lobbying. The choice of strategy is affected by sector concentration and by tradeoffs between lobbying intensity for sector‐wide and firm‐specific outcomes. The following findings are new for India: First, majority of Indian firms (more than 64% in the sample) use a dual strategy, suggesting the importance to better understand what drives dual strategies. Second, the likelihood of adopting a dual lobbying is higher in sectors that are characterized by low concentration (dispersion is higher), indicating a strong competition effect over free‐riding. Third, relative to the single strategy of collective lobbying, Indian manufacturing firms are likely to join hands while walking alone when targeting firm‐specific outcomes, but prefer to walk alone (single strategy of individual lobbying) when there are tradeoffs between different outcomes, to react quickly. Finally, the availability of resources and firm's perceived effectiveness of its lobbying are significant drivers for the strategy choice.     

Market collusion and the politics of protection

This paper investigates the relationship between trade and competition policy within a model where market collusion and protectionist lobbying are themselves related. Collusion and lobbying are modeled as joint products of the same collective effort of firms. In equilibrium, firms cannot achieve greater cooperation in one dimension without reducing it in the other. A trade agreement that limits the effectiveness of lobbying may cause firms to increase market collusion, thereby increasing the domestic price. Thus, international trade agreements may run counter to the goals of competition policy. On the other side, a more restrictive competition policy is shown to either reduce the domestic price or reduce import protection. Thus, competition policy tends to promote trade policy goals. The reason is that restrictive competition policy undermines collusion at the source—it decreases the per-firm benefit to collusion relative to the gains from deviating—reducing firm cooperation in both dimensions.     

Collective decisions with interdependent valuations

Many collective decision problems have in common that individuals’ desired outcomes are correlated but not identical. This paper studies collective decisions with private information about desired policies. Each agent holds private information which mainly concerns his own bliss point, but private information also affects all other agents. We concentrate on two specific mechanism, the median and mean mechanisms establish the existence of symmetric Bayesian Nash equilibria of the corresponding games and compare the performance of the mechanisms for different degrees of interdependencies. Applications of our framework include the provision of public goods and the design of decision processes in international organizations.