DP2152 Campaign Advertising and Voter Welfare

Author(s):	Andrea Prat
Publication Date:	May 1999
Keyword(s):	Advertising, Campaign Contributions, Elections, Split Contributions, Voter Welfare
JEL(s):	D72, D82, M37
Programme Areas:	Public Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=2152

This paper investigates the role of campaign advertising and the opportunity of legal restrictions on it. An electoral race is modeled as a signalling game with three classes of players: a continuum of voters, two candidates, and one interest group. The group has non-verifiable insider information on the candidates' valence and, on the basis of this information, offers a contribution to each candidate in exchange for a favorable policy position. Candidates spend the contributions they receive on non-directly informative advertising. This paper shows that: (1) A separating equilibrium exists in which the group contributes to a candidate only if the insider information about that candidate is positive; (2) Although voters are fully rational, a ban on campaign advertising can be welfare-improving; and (3) Split contributions may arise in equilibrium (and should be prohibited).