DP5913 Politician Preferences and Caps on Political Lobbying

Author(s):	Tuvana Pastine, Ivan Pastine
Publication Date:	November 2006
Keyword(s):	all-pay auction, campaign finance reform, explicit ceiling
JEL(s):	C72, D72
Programme Areas:	Industrial Organization
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=5913

This paper extends Che and Gale (1998) by allowing the incumbent politician to have a preference for the policy position of one of the lobbyists. The effect of a contribution cap is analyzed where two lobbyists contest for a political prize. The cap always helps the lobbyist whose policy position is preferred by the politician no matter whether it is the high-valuation or the low-valuation contestant. In contrast to Che and Gale, once the cap is binding a more restrictive cap always reduces expected aggregate contributions. However, the politician might support the legislation of a barely binding cap. When politician policy preferences perfectly reflect the will of the people, a more restrictive cap is always welfare increasing. When lobbyist's valuations completely internalize all social costs and benefits, a cap is welfare improving if and only if the politician favors the high-value policy. Even a barely binding cap can have significant welfare consequences.