Informational Lobbying under the Shadow of Political Pressure

We examine the incentives of an interest group to provide verifiable policy-relevant information to a political decision-maker and to exert political pressure on her. We show that both lobbying instruments are interdependent. In our view information provision is a risky attempt to affect the politician’s beliefs about the desirability of the lobby’s objective. The constraints governing informational lobbying determine a specific lottery available. The circumstances under which political pressure can be applied specify the lobby’s valuation of different beliefs of the politician and, thus, her attitude toward risk. The combination of lotteries available and induced risk preference determines the optimal lobbying behavior. Our approach gives a novel explanation for the fact that interest groups often try to provide information credibly. We identify several factors that induce risk proclivity (and thus information provision). We also show that the availability of political pressure might have a deterrence effect on information provision. This ‘shadow of political pressure’ might impede information provision at all or induce a complementary relationship between both lobbying instruments.Experts, Influence, Credibility, Political contributions, Issue ads.

Informational Lobbying under the Shadow of Political Pressure

We examine the incentives of an interest group to provide verifiable policy-relevant information to a political decision-maker and to exert political pressure on her. We show that both lobbying instruments are interdependent. In our view information provision is a risky attempt to affect the politician’s beliefs about the desirability of the lobby’s objective. The constraints governing informational lobbying determine a specific lottery available. The circumstances under which political pressure can be applied specify the lobby’s valuation of different beliefs of the politician and, thus, her attitude toward risk. The combination of lotteries available and the “shadow of political pressure” (or induced risk preference) determines the optimal lobbying behavior. We identify several factors that induce risk proclivity (and thus information provision), which allows to explain the stylized fact that lobbies engage both in information provision and political pressure. Moreover, our approach gives a novel explanation for the fact that interest groups often try to provide information credibly. We finally study the extent to which this preference for credibility is robust and identify some instances in which lobbies may prefer to strategically withhold information.Experts, Influence, Credibility, Political contributions, Issue ads.

Side Effects of Campaign Finance Reform

Since campaign finance reform is usually motivated by the concern that existing legislation can not effectively prevent campaign contributions to ‘buy favors’, this paper assumes that contributions influence political decisions. But, given that it is also widely recognized that interest groups achieve influence by providing political decision makers with policy relevant information, we also assume that lobbies engage in non-negligible informational lobbying. We focus on a single political decision to be taken and offer a simple model in which the optimal influence strategy is a mixture of both lobbying instruments. Our main result is to show that campaign finance reform may have important side effects: It may deter informational lobbying so that less policy relevant information is available and as a result political decisions become less efficient.party and candidate financing, lobbying, interest groups, experts, information transmission, contributions, influence, political decision making process.

Side Effects of Campaign Finance Reform

Since campaign finance reform is usually motivated by the concern that existing legislation can not effectively prevent campaign contributions to “buy favors”, this paper assumes that contributions influence political decisions. But, given that it is also widely recognized that interest groups achieve influence by providing political decision makers with policy relevant information, we also assume that lobbies engage in non-negligible informational lobbying. We focus on a single political decision to be taken and offer a simple model in which the optimal influence strategy is a mixture of both lobbying instruments. Our main result is to show that campaign finance reform may have important side-effects: It may deter informational lobbying so that less policy relevant information is available and as a result political decisions become less efficient.party and candidate financing, lobbying, interest groups, experts, information transmission, contributions, influence, political decision making process.

The Bankruptcy-Law Safe Harbor for Derivatives: A Path-Dependence Analysis

U.S. bankruptcy law grants special rights and immunities to creditors in derivatives transactions, including virtually unlimited enforcement rights. This article argues that these rights and immunities result from a form of path dependence, a sequence of industry-lobbied legislative steps, each incremental and in turn serving as apparent justification for the next step, without a rigorous and systematic vetting of the consequences. Because the resulting “safe harbor” has not been fully vetted, its significance and utility should not be taken for granted; and thus regulators, legislators, and other policymakers—whether in the United States or abroad—should not automatically assume, based on its existence, that the safe harbor necessarily reflects the most appropriate treatment of derivatives transactions under bankruptcy and insolvency law or the treatment most likely to minimize systemic risk

The Bankruptcy-Law Safe Harbor for Derivatives: A Path-Dependence Analysis

U.S. bankruptcy law grants special rights and immunities to creditors in derivatives transactions, including virtually unlimited enforcement rights. This article argues that these rights and immunities result from a form of path dependence, a sequence of industry-lobbied legislative steps, each incremental and in turn serving as apparent justification for the next step, without a rigorous and systematic vetting of the consequences. Because the resulting “safe harbor” has not been fully vetted, its significance and utility should not be taken for granted; and thus regulators, legislators, and other policymakers—whether in the United States or abroad—should not automatically assume, based on its existence, that the safe harbor necessarily reflects the most appropriate treatment of derivatives transactions under bankruptcy and insolvency law or the treatment most likely to minimize systemic risk

Some Aspects of Incentive-Based Optimal Pricing and Environmental Regulation with Asymmetric Information.

The paper aims to analyze the problem of regulating a pollution-generating single product monopolistic firm in the presence of information asymmetry about the firm?s cost performance. Following Boyer and Laffont (1999), incentive-based optimal regulation of the firm?s price/ output and the environmental performance is characterized when costs are increasing in output and declining in pollution generated during production. Further, the regulatory agency/ legislator may or may not be politically motivated. When he/ she is politically inclined, the process of lobbying assumes that interest groups offer monetary contributions to the regulatory agency or the legislator. These contributions from the lobby help fund election campaigns. Thus, he/ she no longer behaves as a benevolent maximizer of social welfare, but instead maximizes a weighted average of social welfare and welfare of the lobby. Two alternative cases are considered: one, where the lobby represents environmental interests alone, and another, where the lobby stands solely for firm?s/ industry?s interests. The analysis derives interesting implications for incentive-based regulation of the firm. In general, pricing and environmental performance are distorted for the inefficient firm type under asymmetric information to restrict rents accruing to the efficient firm type. In the presence of the environmental lobby, the politically inclined regulator imposes more stringent environmental regulation under both full information and incomplete information as compared to the no-lobbying case. Interestingly, lobbying by the firm/ industry group also induces the politically motivated regulator to have more restrictive environmental regulation, albeit it now combines it with a higher regulated output for the inefficient firm type under incomplete information vis-…-vis the case of no-lobbying activity.

Biased Contests

We examine the effects of providing more accurate information to a political decision-maker who is lobbied by competing interests. Conventional wisdom holds that such a bias in the direction of the correct decision improves the efficiency of government. We provide a formal definition of bias which is derived from the same fundamentals that give rise to a contest model of lobbying. Efficiency of government is measured by both the probability of taking the correct decision and the amount of social waste associated to lobbying activities. We present a benchmark model in which increasing the bias always improves the efficiency of government under both criteria. However, this result is fragile in the sense that reasonable alternative assumptions in the micro-foundations lead to slightly different models in which -due to different strategic effects of bias- under either criterion there is no guarantee that more accurate information improves government.Endogenous Contests, Contest Success Function, Information provision

The Allocation of Resources by Interest Groups: Lobbying, Litigation and Administrative Regulation

One of the central concerns about American policy making institutions is the degree to which political outcomes can be influenced by interested parties. While the literature on interest group strategies in particular institutions - legislative, administrative, and legal - is extensive, there is very little scholarship which examines how the interdependencies between institutions affects the strategies of groups. In this paper we examine in a formal theoretical model how the opportunity to litigate administrative rulemaking in the courts affects the lobbying strategies of competing interest groups at the rulemaking stage. Using a resource-based view of group activity, we develop a number of important insights about each stage that cannot be observed by examining each one in isolation. We demonstrate that lobbying effort responds to the ideology of the court, and the responsiveness of the court to resources. In particular, (1) as courts become more biased toward the status quo, interest group lobbying investments become smaller, and may be eliminated all together, (2) as interest groups become wealthier, they spend more on lobbying, and (3) as the responsiveness of courts to resources decreases, the effect it has on lobbying investments depends on the underlying ideology of the court