How a Firm Can Induce Legislators to Adopt a Bad Policy

32 Pages Posted: 26 Apr 2012

See all articles by Matthias Dahm

Matthias Dahm

University of Nottingham; Universitat Rovira i Virgili - Facultat de Ciències Econòmiques i Empresarials

Robert Dur

Erasmus University Rotterdam (EUR) - Department of Economics; Tinbergen Institute; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Amihai Glazer

University of California, Irvine - Department of Economics

Date Written: April 25, 2012

Abstract

This paper shows why a majority of legislators may vote for a policy that benefits a firm but harms all legislators. The firm may induce legislators to support the policy by suggesting that it is more likely to invest in a district whose voters or representative support the policy. In equilibrium, no one vote may be decisive, so each legislator who seeks the firm’s investment votes for the policy, though all legislators would be better off if they all voted against the policy. Moreover, when votes reveal information about the district, the firm’s implicit promise or threat can be credible. Unlike influence mechanisms based on contributions or bribes, the behavior considered is time consistent and in line with the observed small spending by special interests.

Keywords: lobbying, voting, special interests, credibility

JEL Classification: D720, D780

Suggested Citation

Dahm, Matthias and Dur, Robert and Glazer, Amihai, How a Firm Can Induce Legislators to Adopt a Bad Policy (April 25, 2012). CESifo Working Paper Series No. 3788. Available at SSRN: https://ssrn.com/abstract=2045986

Matthias Dahm

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

Universitat Rovira i Virgili - Facultat de Ciències Econòmiques i Empresarials ( email )

Department of Economics
Av. de la Universitat 1
43204 Reus
Spain
+34977 759 850 (Phone)

HOME PAGE: http://gandalf.fcee.urv.es/professors/MatthiasDahm/

Robert Dur (Contact Author)

Erasmus University Rotterdam (EUR) - Department of Economics ( email )

FEW / H 8-15
P.O. Box 1738
Rotterdam, 3000 DR
Netherlands
+31-10-4082159 (Phone)
+31-10-4089161 (Fax)

HOME PAGE: http://people.few.eur.nl/dur

Tinbergen Institute

Amsterdam/Rotterdam
Netherlands

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Amihai Glazer

University of California, Irvine - Department of Economics ( email )

3151 Social Science Plaza
Irvine, CA 92697-5100
United States
949-854-6563 (Phone)
949-824-2182 (Fax)

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