Unit 8: Trade and influence in voting: LOBBYING

Question 1

Define lobbying?

Answer 1

A selected group of the population attempting to influence a voting outcome by influencing parties or voters

Question 2

Two views on lobbying? What is it about the practice that can separate these views?

Answer 2

Good. necessary part of political competition
Bad. can also be seen as corruption by attempting to undermine the trust placed in politicians and democracy

Which of these it actually is depends on the level of TRANSPARENCY lobbying is done with!

Question 3

Explain the intuition of the lobbying model?

Answer 3

1) voters decide on an economic policy
2) this policy is of interest to a particular group (eg. FM regulation) and so this group have motivation to lobby and affect the outcome of policy

benefit is to the lobbying party, but the cost is split amongst all (eg. cutting taxes to MNCs)

Question 4

Explain the set-up of the lobbying model?

Answer 4

Suppose 3 groups’ citizens with equal income: y1=y2=y3 > 1
Total population is a=1 (a1+a2+a3=1: relative group sizes)
All citizens consume a private good, c(i) and a local public good, g(i)

Question 5

Utility function in the lobbying model for each ‘group’?

Answer 5

U(i)=c(i)+ln(g(i)) (eg)

Question 6

(case 1) Explain why when a government is striving for the social optimum (ie. utility maximising government who maximise the weighted sum of the utility of each group), each citizen gets the same amount of the PG regardless of the size of their group?

Answer 6

This is easiest to show; see notes

Question 7

Define indirect utility function?

Answer 7

A function showing maximal attainable utility when faced with an income y and a vector prices of goods

Question 8

(case 2) What is partial fiscal federalism (aka. centrally financed public good)?

Answer 8

When the amount of the PG, g(i), is decided by each group separately, BUT funding is central by a common tax rate, t

Question 9

(case 2) Show that the volume of PG chosen under partial fiscal federalism will be greater than that chosen under case 1 (social optimum)? Explain the implication of this, and why this is so?

Answer 9

See notes for proof

Basically means that if spending is decided locally but financed publicly -> greater (ie. more than optimal) spending on the PG

Why? Smaller groups do not fully internalise the costs of the PG (ie. benefits concentrated, costs dispersed!)

Question 10

(case 3) show that, if group 1 becomes a lobby and tries to influence politicians, the lobby group will receive more than the social optimum, while the other two groups will receive less? What does this indicate?

Answer 10

see notes

Tf shows that lobbying causes a misallocation of public resources!

Question 11

2 problems with the lobbying model?

Answer 11

Doesn’t consider the effects of free-riders

Doesn’t help distinguish between the two perspectives of lobbying (ie. good/bad)

Question 12

Regarding the evidence on perspectives of lobbying, what do empirical findings suggest?

Answer 12

There is evidence for both perspectives:
- Bertrand et al. (2014) find monetary premium is higher for connections rather than expertise (indicating lobbying presence?)

Question 13

2 ways lobbying has been found empirically to occur?

Answer 13

Ex-ante: contributions to campaigns

Ex-post: pressure on politicians