Political Action Committees (PACs) can aect public policies in either of two ways: altering legislators' roll-call voting behavior, or in¯uencing election outcomes. This paper develops a dynamic model demonstrating that the relative importance of the election-in¯uencing channel is easily underestimated. A one-time contribution to a candidate who supports the PAC's position that alters an election outcome yields bene®ts to the PAC as long as that candidate holds oce. In contrast, roll-call vote buying is likely to operate on a quid-pro-quo basis, limiting the PAC's return on investment. Empirical tests based on the theoretical model suggest that PACs value the election-in¯uencing aspect of contributions at least as much as the roll-call vote-buying channel.CAMPAIGN CONTRIBUTIONS by Political Action Committees (PACs) have increased dramatically in the last twenty years. Donations made by PACs to House races grew from $36 million to $120 million (in constant 1992 dollars) between 1974 and 1992, an increase of over 200% in real terms. PACs now account for over one-third of all campaign contributions in House races, and one-fourth of contributions to Senate candidates.In response to the increasing importance of PACs, a great deal of analysis has been devoted to understanding PAC behavior. There are two primary rationales for PAC donations. First, PACs may hope to aect the course of legislation either by``buying votes'' in Congress [e.g., Snyder (1990)], or by altering legislation at the committee stage [Hall and Wayman (1989)]. A second possible goal of PAC support is to in¯uence election outcomes, either by attracting voters directly via candidate endorsement, or indirectly through campaign contributions that the candidate transforms into votes [Austen-Smith (1987); Baron (1989)].In deciding how to allocate campaign contributions across candidates, PACs, need to take into account three (sometimes contradictory) considerations. If the PAC is attempting to in¯uence legislators' votes, then the PAC wants to contribute to winning candidates, typically incumbents, since losing candidates cannot repay favors to the PAC. PACs also want to give to candidates who are on the margin with respect to the PAC's issues. Legislators who staunchly support or oppose the PAC's position are less likely to alter their position in response to campaign contributions than are marginal congressmen. Finally, to the extent that PACs are attempting to in¯uence election outcomes, they want to concentrate contributions on staunch supporters.

Trading data from the gambling market for the 2002 World Cup provide a unique window through which to test theories of market efficiency.  This market provides many of the benefits of a laboratory experiment, but with much higher stakes, experienced participants, and a naturally-occurring environment.  The primary drawback of the data is the relatively small number of trades.  The evidence concerning market efficiency is mixed.  Although markets respond strongly to goals being scored, there is some evidence that prices continue to trend higher for 10-15 minutes after a goal.  We also observe systematically negative returns for bets on the pre-game favorite, consistent with the biases seen in wagering on other sports.  We document the endogenous emergence of market makers.  These market makers are involved in a large share of trades.  Increasing from two active market makers to five or more market makers does not appear to improve the functioning of the market.  On average, the market makers earn slightly negative returns, implying that other traders are able to identify situations in which market makers are setting inefficient prices