The Economics of Commercial Lobbying
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This dissertation addresses the economic behavior and political influence activities by lobbyists today by examining the existence, mechanisms, and welfare implications of commercial lobbying activities and their optimal regulation. In the second chapter of this dissertation, a novel model of lobbying is presented that explains the behavior of commercial lobbying firms (such as the so-called K-Street lobbyists of Washington, D.C.). In contrast to classical special interest groups, commercial lobbying firms represent a variety of clients and are not directly affected by policy outcomes. They are hired by citizens to advocate policy proposals to politicians that are beneficial to the citizens but also have social implications. Using a model with a market for lobbying services and agency relationships between lobbyists and policymakers it can be shown why commercial lobbying firms exist. It can also be shown that self-interested policymakers, who observe lobbying activities, may employ commercial lobbying firms in a socially inefficient manner. In the third chapter of this dissertation, the analysis examines the effective regulation of commercial lobbying activities and focuses on the endogenous choice of regulatory institutions. The analysis uses the model of commercial lobbying presented in the second chapter. I derive the institutional conditions under which a market outcome can be first-best as well as the conditions under which a first-best institution will be self-stable. One result is that current regulations may fail to be effective and cannot limit lobbyists' and policymakers' incentives to substitute financial contributions for the socially beneficial acquisition of information. Additional results explain why endogenous reforms may or may not occur. In the fourth chapter of this dissertation, the analysis uses a dynamic model of commercial lobbying with lobbyists who undertake unobservable investigation efforts and promise financial contributions. It is shown that repeated relationships with lobbyists simplify a policymaker's information and contracting problem and help policymakers to escape a "cheap talk" lobbying game. The welfare implications of these interactions depend on whether the policymakers' information or contracting problem predominates. Further, the policymaker's information problem may actually improve welfare outcomes. Similarly, financial contributions may also improve welfare outcomes. This dissertation includes unpublished co-authored material.