Endogenous Cost Lobbying: Theory and Evidence

Abstract

Special interests attempt to influence lawmakers through campaign contributions and through informational lobbying. Both types of influence activities have been explored in theoretical models but only the former has received much empirical scrutiny. We provide the first empirical tests of a major class of models of costly legislative informational lobbying as distinct from campaign contributions, the Potters-van Winden-Grossman-Helpman (PWGH) signaling model. Using data derived from over 50,000 observations of annual lobbying expenditures by special interest groups in the American states, we find that, as predicted, special interest groups increase lobbying expenditures when the legislature is controlled by “enemies” rather than “friends.” In addition, lobbying expenditures vary across states with different budgeting institutions in ways predicted by the model, when it is extended to multiple periods. Overall, the results provide substantial support for the PWGH class of lobbying models.

Keywords: Lobbying, Law and Politics

JEL Classification: K0