Side Effects of Campaign Finance Reform

Abstract

Because campaign finance reform is usually motivated by the concern that existing legislation cannot effectively prevent campaign contributions to “buy favors,” this article assumes that contributions influence political decisions. But, given that it is also widely recognized that interest groups achieve influence by providing political decision makers with policy relevant information, we also assume that lobbies engage in non‐negligible informational lobbying. We focus on a single political decision to be taken and offer a simple model in which the optimal influence strategy is a mixture of both lobbying instruments. Our main result is to show that campaign finance reform may have important side effects: It may deter informational lobbying so that less policy relevant information is available and as a result political decisions become less efficient. (JEL: C72, D72)

Informational lobbying under the shadow of political pressure

“…We have already related their work to our key findings and explain further connections at the appropriate place in the analysis. Our companion paper Dahm and Porteiro (2005) builds on the results derived in the present paper (particularly (4) above) and explores policy implications for campaign finance reform.…”

“…36 Further policy implications of our analysis concerning campaign finance regulation are explored in Dahm and Porteiro (2005). In this concluding section we discuss now some of our simplifying assumptions and future research.…”

“…Postulating linear costs affects only the complementarity established in Proposition 4.5. However, this result could be restored by a minor change in the set-up (see Dahm and Porteiro (2005)). 25 This is in line with the literature e.g.…”

“…The next proposition provides therefore a rationale of when we should observe each choice. 17 We could also define a certainty-equivalent allocation q c which the lobby considers to be equally advantageous as the public test. Of course, because the lobby prefers a lower q, we have q(x) < q c .…”

“…In our companion paper Dahm and Porteiro (2005) we analyze a lobbying model in which EΠ L (q) is strictly convex. Another instance in which EΠ L (q) is strictly convex is given by Example 3.2 when the lobby is an environmental group that is interested in minimizing the total amount of the public good, say local highway constructions.…”