On complexity of lobbying in multiple referenda

In this paper we show that lobbying in conditions of “direct democracy” is virtually impossible, even in conditions of complete information about voters’ preferences, since it would require solving a very computationally hard problem. We use the apparatus of parametrized complexity for this purpose.      

The “greening” of trade unions and the demand for eco-taxes

By embedding labour market bargaining considerations in an influence-seeking framework, we show how a union's stance on environmental policy depends on the exposure of their members to the risk of job loss. With a risk of unemployment, unions lobby with employers to resist stricter environmental policies. When employment is secure, unions may support policies that reduce employment opportunities for nonunion workers. “Environmentalism” can therefore arise without explicit environmental concerns among workers. Consequently, pollution taxes may yield a negative welfare dividend in the form of inefficiently high unemployment.     

Simple measures of endogenous free-riding in protectionist lobbies

Even though there is a well-known empirical and theoretical link between lobby and the free-rider problem, the existing literature only attributes its findings to the free-rider rather than the measurement of its extent. We develop broader theoretical micro-foundations for measuring free-riding and investigate the determinants of tariff rates from the perspective of corporate lobbying and free-riding. Our estimation result shows that the degree of free-riding not only varies across industries but is particularly high in larger industries indicating the underutilization of lobbying. The tariff rates under monopoly are about 8 times higher than under perfect competition in most industries suggesting that stakeholders should maintain higher industry protection levels through lobbying.     

Endogenous trade policy and lobby formation: an application to the free-rider problem

This paper develops a model in which tariffs are determined through bargaining between a utility maximizing policy maker and an industry lobby. Individual firms only contribute to the lobbying effort if it is in their own self-interest so that both trade policies and lobby formation are endogenous. By introducing bargaining between the industry and the government, the paper provides microfoundations for the tariff-formation function approach taken by many authors in the political economy literature. Applied to the free-rider problem, the model identifies general conditions under which increasing the number of firms in an industry makes cooperation between them more difficult.     

An Analysis of Comment Integration Involving SAS 54

The process by which auditing standards are established in the United States was criticized by the late Senator Metcalf (1977) and more recently by the Treadway Commission (1987). Their allegations involving the Auditing Standards Board (ASB) encompass many perceived deficiencies, ranging from the charge that the large accounting firms dominate the standard-setting process, to the notion that the auditing standards currently promulgated do not address emerging policy issues on a timely basis. However, despite these criticisms, there is a paucity of empirical research involving the actual formulation of auditing standards in the United States. Accordingly, this research investigates certain behavioural facets involving the evolution of Statement on Auditing Standards No. 54, Illegal Acts by Clients , along certain dimensions, including audit-firm size. Specifically, the paper examines reactions to the exposure draft of SAS 54 and the extent to which written suggestions were incorporated into the final standard. The results do not support the proposition that either audit firm size or an employee's membership on the ASB has a significant impact on achieving the integration of a respondent's comments into the final audit statement.     

Trade policy & lobbying effectiveness: Theory and evidence for India

How do we understand differences in effectiveness in lobbying for trade policy? To explain lobbying effectiveness, I introduce a new measure into Grossman and Helpman's (1994, American Economic Review 84: 833–850) model of protection-for-sale (PFS). Differences in effectiveness are explained on the basis that some groups make a better case for protection by sending a signal regarding information they possess and that is considered by policy makers before setting trade policies. I begin by estimating a standard PFS model for India using a measure of political organization, a common approach in the empirical literature on PFS. To overcome the need to define such a binary political organization variable, I then use panel data to estimate the new measure of relative lobbying effectiveness. For the most effective sectors, a high output to import ratio translates into higher trade protection; for the least effective sectors, higher output to import ratio translates into lower trade protection. Examining some of the political economy influences on lobbying effectiveness, I find that producing similar goods reduces the positive effect of geographical proximity on effectiveness. Hence, within a sector, firms in close proximity and producing similar goods compete to lobby rather than cooperating or free-riding.     

What drives firms' decisions to lobby and determinants of their lobbying positions: Evidence from firms' comment letter submissions during FASB's stock option expensing proposal in 2004

I examine what drives firms' decisions on whether or not to lobby and, if so, whether to oppose or support FASB's 2004 option expensing proposal. Given that the accounting treatment in place and the political climate were different in 2004 than in 1993, it becomes interesting to examine whether the incentives driving managerial lobbying process have changed. Indeed, in contrast to prior research that finds top managers' option compensation being the main incentive to oppose option expensing in 1993, firms' closeness to debt constraints is the main incentive to oppose option expensing in 2004. I also find that firms that are smaller, that are in an industry with peers who have lobbied, that have board interlocks with firms that have lobbied, and that have higher board independence are more likely to self-select to lobby. While prior accounting lobbying research has examined firms' decisions to lobby and firms' decision on their lobbying positions independently, this study improves on prior research methodology by using a two-level nested logit model and examines both decisions.     

Lobbying under political uncertainty

This paper considers a model of lobbying described as a common agency game; it departs from the current literature by assuming that the special interest groups are not a priori organized or unorganized and that the type of the politician is not common knowledge. We characterize equilibria when the choice set of the politician consists of two policies; we discuss the conditions leading to efficiency and the characteristics of the groups explaining their relative success in the process of influence. We also offer some results for the general case, including disjoint necessary and sufficient conditions for the equilibria to be efficient.     

Dissertation abstract: The experimental analysis of the political economics of fisheries governance

This dissertation focuses on the political economy of fisheries governance. The study develops a formal model of fisheries governance by combining the features of the common pool fishery and the political institution of lobbying; designs a laboratory fishery governance institution and conducts economic experiments to test the hypotheses derived from the formal model. Specifically, the study analyzes how fishing firms invest in efforts to influence fishery regulation and management through voluntary contribution lobbying. The study also analyses and compares contribution and effort behavior in the lobbying and the CPR using data from economic experiments. The results indicate that lobbying to change suboptimal fishery regulations was significantly below the subgame perfect equilibrium prediction and contributions to raise the cap were significantly different than contributions to lower the cap toward the social optimum. Study results show that subjects successfully lobbied to raise inefficiently low fishing quotas, but were unable to lobby to reduce inefficiently high fishing quotas. Detailed analysis of subjects’ contribution and effort behavior suggest that despite the interesting benefit-cost duality between pure public goods and CPRs, the pattern of cooperative behavior in these two social dilemma situations was different and the level of cooperation in the voluntary contribution lobbying experiment was lower than those reported in other public goods experiments. To provide external validity to these experimental findings, the study further analyzes and compares lobbying expenditures in the fishery sector with those in other natural resource industries using field data from the United States. A comparison of actual lobbying expenditures as percentage of valued added shows that lobbying effort in the U.S fishery sector is not significantly different than those in other natural resource industries such as mining and electric utility industries, but the pattern of lobbying is different. Whereas fishing firms lobby through associations or pressure groups, firms in other natural resource industries lobby unilaterally. This observation suggests that differences in industrial structure and incentives influence the pattern of lobbying and the lobbying behavior of firms across industries. The theoretical predictions derived from the formal model of fisheries governance are consistent with our experimental findings and with the field data on lobbying in the US fisheries sector. These findings suggest that heterogeneity drives rent-seeking activities in the US fisheries sector and that fishing firms attempt to circumvent political collective action problems by forming and lobbying through associations of stakeholders with relatively homogenous policy preferences. JEL Classification D22, D72, D78, H41 Advisor: Prof. Jon G. Sutinen     

A theory of rent seeking with informational foundations

I develop a model of rent seeking with informational foundations and an arbitrary number of rent seekers, and I compare the results with Tullock’s (1980) classic model where the influence activities are “black-boxed.” Given the microfoundations, the welfare consequences of rent seeking can be studied. In particular, I show that competition among rent seekers can be socially beneficial, since the additional information that the decision maker gets access to makes the increase in rent-seeking expenditures worthwhile. However, the analysis also highlights a logic that, under natural parameter assumptions, makes the rent seekers spend more resources on rent seeking than is in society’s interest, which is consistent with the spirit of the rent-seeking literature.