DP12789 A Theory of Small Campaign Contributions

Author(s): Laurent Bouton, Micael Castanheira, Allan Drazen
Publication Date: March 2018
Keyword(s): Campaign Contributions, Campaign Finance Laws, Electoral Motive, Income inequality
JEL(s): D72
Programme Areas: Public Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12789

We present a model of electorally-motivated, small campaign contributions. The analysis uncovers interesting interactions among small donors and has novel implications for the effect of income inequality on total contributions and election outcomes. Moreover, it helps explain a number of empirical observations that seem anomalous when contributions are driven by the consumption or the influence motives. We also study the impact of different forms of campaign finance laws on contribution behavior, probabilities of electoral outcomes, and welfare. Our results are consistent with more behaviorally motivated donors when contributions are driven by the parties' strategic solicitation of funds. We also indicate how the model and its results may have important implications for empirical work on campaign contributions.