Influence Activities, Coalitions, and Uniform Policies: Implications for the Regulation of Financial Institutions

Abstract

In this paper we examine a setting where agents can form lobbying coalitions to influence a policy-maker. Policy uniformity causes agents to free ride on each other's lobbying and gives them an incentive to form lobbying coalitions. We investigate when coalitions are formed by similar or dissimilar agents and show that endogenous coalition formation causes the effects of policy uniformity and lobbying costs on aggregate lobbying activity and policy strength to be non-monotonic. Our model suggests that increased competition in the market for coalition-facilitating lobbyists can lead to less lobbying. We discuss implications for the regulation of financial institutions.

Keywords: Lobbies, Coalitions, One-Size-Fits-All, Regulation

JEL Classification: D72, G38, L51, M40