Jan Potters

Interest groups: a survey of empirical models that try to assess their influence

Substantial political power is often attributed to interest groups. The origin of this power is not quite clear, though, and the mechanisms by which influence is effectuated are not yet fully understood. The last two decades have yielded a vast number of studies which use empirical models to assess the importance of interest groups for the formation of public policy. Each of these studies yields insights on particular, confined aspects of interest group politics. To get a more complete picture of the results, however, a broad survey of the literature seems useful. It is the purpose of this paper to provide such a survey.

Lobbying and Asymmetric Information

Informational lobbying — the use by interest groups of their (alleged) expertise or private information on matters of importance for policymakers in an attempt to persuade them to implement particular policies — is often regarded as an important means of influence. This paper analyzes this phenomenon in a game setting. On the one hand, the interest group is assumed to have private information which is relevant to the policymaker, whilst, on the other hand, the policymaker is assumed to be fully aware of the strategic incentives of the interest group to (mis)report or conceal its private information.It is shown that in a setting of partially conflicting interests a rationale for informational lobbying can only exist if messages bear a cost to the interest group and if the groups preferences carry information in the ‘right direction’. Furthermore, it is shown that it is not the content of the message as such, but rather the characteristics of the interest group that induces potential changes in the policymakers behavior. In addition, the model reveals some interesting results on the relation between, on the one hand, the occurrence and impact of lobbying and, on the other hand, the cost of lobbying, the stake which an interest group has in persuading the policymaker, the similarity between the policymakers and the groups preferences, and the initial beliefs of the policymaker. Moreover, we relate the results to some empirical findings on lobbying. qu]Much of the pressure placed upon government and its agencies takes the form of freely provided “objective” studies showing the important outcomes to be expected from the enactment of particular policies (Bartlett, 1973: 133, his quotation marks). qu]The analysis here is vague. What is needed is an equilibrium model in which lobbying activities have influence. Incomplete information ought to be the key to building such a model that would explain why lobbying occurs (information, collusion with decision makers, and so on) and whether lobbying expenses are socially wasteful. (Tirole, 1989: Ch. 1.3, p. 77, Rentseeking behavior).

After you--endogenous sequencing in voluntary contribution games

Abstract We examine contributions to a public good when some donors do not know the true value of the good. If donors in such an environment determine the sequence of moves, two contribution orders may arise as equilibria. Either the uninformed and informed donors contribute simultaneously or the informed contribute prior to the uninformed. Sequential moves result in a larger provision of the public good, because the follower mimics the action of the leader, and in accounting for this response the leader chooses to contribute when it is efficient to do so. An experimental investigation of the game shows that the donors predominantly choose to contribute sequentially, and that the resulting contributions are larger than those of the simultaneous-move game. Although the gain from sequential moves is smaller when the sequence is set exogenously, our results suggest that the involved parties would benefit from having sequential moves imposed upon them.

An experimental examination of rational rent-seeking

The theoretical literature exploring various ramifications and applications of Tullocks (1980) rent-seeking model is extensive and rapidly growing. In contrast, there exist as yet only a few experimental evaluations of this model, with ambiguous results. Moreover, these studies focus on one particular case (proportional probabilities) and use a problematic experimental design. With an appropriate design we investigate the extreme cases of proportional probabilities and perfect discrimination, which offer the starkest contrast in theoretical predictions. We find substantial evidence for the predictive power of the rent-seeking model, particularly if one allows for the fact that people sometimes make mistakes or are confused about what to do.

Campaign Expenditures, Contributions and Direct Endorsements: The Strategic Use of Information and Money to Influence Voter Behavior

A costly signaling model is presented in which we show how campaign expenditures can buy votes. The model shows that the amount of campaign expenditures may convey the electorate information about the candidate’s intended policy. When this model is extended to allow for a contributing interest group, it appears that for campaigning to be informative it is sometimes crucial that campaign funds are supplied by informed third parties. The extension also provides an explanation why interest groups contribute to the candidate’s campaign, rather than using direct endorsements; they may need the candidate as an intermediary to filter their opposing interests.

Modelling political pressure as transmission of information

Studies offering a formal description of interest group behaviour aimed at influencing government policy typically use an ‘influence function’ to represent the transformation of resources into political influence. A formal model of the interaction underlying this transformation, however, appears to be lacking: the pressure process itself is treated as a ‘black box’. In this paper we try to shed some light on this process. To that purpose the paper starts out with a formalization of political pressure, central to which is the transmission of information. Then a simple but basic game is presented formalizing the interaction between a government and an interest group. It is shown that pressure can be part of a sequential equilibrium. The results and insights obtained from the model are discussed and evaluated in a broader game-theoretical perspective.

Hierarchy and Opportunism in Teams

We use an experiment to compare two institutions for allocating the proceeds of team production. Under revenue-sharing, each team member receives an equal share of team output; under leader-determined shares, a team leader has the power to implement her own allocation. Both arrangements are vulnerable to opportunistic incentives: under revenue-sharing team members have an incentive to free ride, while under leader-determined shares leaders have an incentive to seize team output. We find that most leaders forego the temptation to appropriate team output and manage to curtail free riding. As a result, compared to revenue-sharing, the presence of a team leader results in a significant improvement in team performance. (This abstract was borrowed from another version of this item.)

Cooperation in an Overlapping Generations Experiment

Abstract Recent theoretical work shows that folk theorems can be developed for infinite overlapping generations games. Cooperation in such games can be sustained as a Nash equilibrium. But, of course, there are other equilibria. This paper investigates experimentally whether cooperation actually occurs in a simple overlapping generations game. Subjects both play the game and formulate strategies. Our main finding is that subjects fail to exploit the intertemporal structure of the game. Even when we provided subjects with a recommendation to play the grim trigger strategy, most of the subjects still employed safe history-independent strategies. Journal of Economic Literature Classification Numbers: C72, C92, D90.

(In)accuracy of a European political stock market: The influence of common value structures

This paper presents the results of a political stock market in the Netherlands: PAM94. The exchange covered three consecutive elections, allowing trade on five different markets. The predictions at PAM94 appear to be less accurate than those of previous markets of comparable size. Of the possible explanations that we examine, one in particular survives closer scrutiny. It concerns a type of judgement failure related to the winners curse in common value auctions. Theoretical as well as empirical support is offered. Apart from qualifying the attractiveness of such markets as an alternative for opinion polls, this explanation may also be relevant for the analysis of other asset markets. Moreover, this judgement failure may be more important for European political stock markets than for the U.S., because the structure of the common values (vote shares) at multiparty elections make them especially vulnerable to it.

Oligopoly Experiments In The Current Millennium

We present a general overview of papers that employ laboratory experiments to study oligopoly markets. We focus on papers that have been published since 2000. We categorize studies into three broad classes: (1) oligopoly competition from a static perspective, (2) dynamics, convergence, and learning, and (3) collusion and policy.