Working Paper: CEPR ID: DP11118
Authors: Jean-Philippe Bonardi; Olivier Cadot; Lionel Cottier
Abstract: We set up a model of costly information production between two lobbies, a firm and a consumer group, competing for influence over an imperfectly informed but benevolent government. The government is endowed with a parametric amount of information and chooses the best policy from a finite, countable feasible set given the information available (its own and that forwarded by lobbies). Lobbies have asymmetric preferences, the firm being a high-stakes player with relatively extreme preferences and the consumer group a low-stakes player with preferences more aligned with the government's. We show that lobbies spend too much on information production in any Nash equilibrium despite a timing-game structure in which the lobbies are free to choose the order of play. We also show that in some parameter configurations, the firm insures against a consumer win by forwarding unbiased information to the government, in spite of its own extreme preferences and high stakes. The resulting informational rent enables the government to adopt moderate policies aligned with its own (i.e. societal) preferences, suggesting a new way in which lobby competition can produce good policies even when the government is imperfectly informed.
Keywords: game theory; lobbying; model; imperfect information; timing game
JEL Codes: H4; K0; P1; D72; F13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| competition among lobbies (D72) | excessive spending on information production (H72) |
| firm's extreme preferences (D21) | disclosure of more information (Y50) |
| government's poor information level (H11) | likelihood of adopting socially optimal policies (D78) |
| firm's extreme preferences (D21) | unbiased information disclosure (D82) |
| government extracts informational rent from firm (H13) | adoption of moderate policies (E63) |
| extremist lobby (D72) | becomes a truthteller (Y60) |