Working Paper: CEPR ID: DP13843
Authors: David Martimort
Abstract: Two conflicting interest groups buy favors from a policy-maker. Influence is modeled as a common agency game with lobbyists proposing monetary contributions contingent on decisions.When the preferences of the group members are common knowledge,groups formefficiently and lobbying competition perfectly aggregates preferences. When those preferences are instead private information, free riding in collective action arises within groups. Free riding implies that the influence of a group is weakened and that lobbying competition imperfectly aggregates preferences.By softening lobbying competition,private information might also increase groups' payoffs and hurt the policy-maker.Importantly, the magnitudes of informational frictions within each group are jointly determined at equilibrium.We draw from these findings a number of implications for the organization of interest groups.
Keywords: Lobbying; Collective Action; Free Riding; Asymmetric Information; Common Agency
JEL Codes: D72; D82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| information asymmetry (D82) | group contributions (D70) |
| group contributions (D70) | policy outcomes (D78) |
| common knowledge of preferences (D11) | efficient group formation (D85) |
| efficient group formation (D85) | effective policymaking (D78) |
| private information of preferences (D11) | free riding (H40) |
| free riding (H40) | diminished group influence (C92) |
| diminished group influence (C92) | inefficient policymaking (D78) |
| informational frictions (D89) | group payoffs (C72) |
| informational frictions (D89) | policymaker's ability to extract contributions (D72) |
| private information (D82) | inefficiencies in group formation (D85) |
| private information (D82) | inefficiencies in lobbying efforts (D72) |