A dynamic model of endogenous interest group sizes and policymaking

Abstract

We present a dynamic model of endogenous interest group sizes and policymaking. Our model integrates `top-down' (policy) and `bottom-up' (behavioral) influences on the development of interest groups. We show that, for example an increase in the contribution by members of an interest group need not induce larger subsidies to that group, even though it would in case of fixed interest group sizes. This is due to a political participation effect, next to a redistribution effect. On the other hand, the dynamic analysis of the model shows that reliance on equilibrium results such as these can be misleading since equilibria may not be stable. In fact, complicated dynamics may emerge leading to erratic and path dependent time patterns for policy and interest group sizes. We demonstrate that our model can endogenously generate the types of spurts and declines in organizational density that are observed in empirical studies.