Abstract

http://ssrn.com/abstract=7358
 
 

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Interest Group Competition and the Organization of Congress: Theory and Evidence from Financial Services Political Action Committees


Randall S. Kroszner


Booth School of Business, University of Chicago; National Bureau of Economic Research (NBER)

Thomas Stratmann


George Mason University - Buchanan Center Political Economy; CESifo (Center for Economic Studies and Ifo Institute); Harvard University - Edmond J. Safra Center for Ethics

March 1996


Abstract:     
This paper develops a positive theory of how competition among political pressure groups shapes the organization of Congress and tests the theory using data on political action committees (PACs) in the financial services industries. For the Members of Congress, the first-best way to maximize PAC contributions would be auction their legislative service time for a fee to the highest bidders. Such contracts, however, are considered bribery and are not legally enforceable. The Congressional committee system may arise, we argue, as a second-best solution to mitigate the agency problems when "fee-for-service" contracts are not available. The committee system fosters repeated interactions and long-term relationships between the PACs and the members of the relevant committees. This structure facilitates the development of reputations which can reduce the uncertainty both for the PACs and for the members and thereby increase contributions. We then find supporting evidence in both cross-sectional and time-series contribution patterns. First, on the House Banking Committee, where relationships are high and uncertainty is low, the competing groups specialize their contributions by giving large amounts to different committee members. In contrast, for legislators who are not members of the Banking Committee, where relationships are low and uncertainty is high, the competing PACs simply match each others' low level of contributions. Second, as each member of the House Banking committee develops his reputation through time (hence reduces uncertainty), the sources of PAC contributions for that member become more concentrated in one of the rival groups. We conclude with implications of our theory for the effects of term limits, party discipline, and corruption on the organization of Congress.

JEL Classification: G28, D78, D72

working papers series


Not Available For Download

Date posted: July 1, 1998  

Suggested Citation

Kroszner, Randall S. and Stratmann, Thomas, Interest Group Competition and the Organization of Congress: Theory and Evidence from Financial Services Political Action Committees (March 1996). Available at SSRN: http://ssrn.com/abstract=7358

Contact Information

Randall S. Kroszner (Contact Author)
Booth School of Business, University of Chicago ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-8779 (Phone)
773-702-0458 (Fax)
HOME PAGE: http://gsbwww.uchicago.edu/fac/randall.kroszner/re
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Thomas Stratmann
George Mason University - Buchanan Center Political Economy ( email )
4400 University Drive
Fairfax, VA 22030
United States
703-993-2330 (Phone)
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
Harvard University - Edmond J. Safra Center for Ethics ( email )
124 Mount Auburn Street
Suite 520N
Cambridge, MA 02138
United States

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