Legislative Subsidy or Belief Diffusion? The Battle Over Housing Finance in the run-up to the Financial Crisis

31 Pages Posted: 8 Sep 2014

Date Written: 2014

Abstract

In 1989, Berry and Wilcox argued that the combination of America’s two party system, the 1960s decline in party organizations, and the 1974 changes in election law had placed interest group politics at the center of American policymaking. However, the evidence of any causal chain flowing from interest group donations to legislative votes remains enigmatic. Interest groups tend to support members whose roll–call votes are already predictable on the basis of ideology, which we would not expect in vote-buying scenarios. Some of this evidence suggests interest group resources simply provide a legislative subsidy to supportive members. On the other hand, much interest group influence occurs at the committee level, where members may self-select into smaller components of the ideological spectrum. Such scenarios might lead researchers to underestimate interest group influence. On either side, little of the existing literature addresses whether interest groups affect the way members understand and interpret policy-relevant information; it does not address whether interest groups affect the way members think about policy issues.

This paper suggests a key mechanism for interest group influence is in the opportunity for donors to frame information and dominate the belief diffusion process in congressional committees. I develop hypotheses around the impact of interest group access on belief diffusion in a committee-level social network. I then use social network analysis and semantic network analysis to determine whether members with the same interest group donors develop statistically similar cognitive maps with respect to a complex policy issue. The study focuses on the 2000-2008 debate on reforming the regulatory structure for Fannie Mae and Freddie Mac, which ended in one of the largest financial bailouts in American history.

Keywords: interest groups, social network analysis, Government-Sponsored Enterprises, GSEs, Fannie Mae, Freddie Mac, congress, legislative studies, financial crisis

JEL Classification: P16, D83, H60

Suggested Citation

Champagne, Maurice, Legislative Subsidy or Belief Diffusion? The Battle Over Housing Finance in the run-up to the Financial Crisis (2014). APSA 2014 Annual Meeting Paper. Available at SSRN: https://ssrn.com/abstract=2453864

Maurice Champagne (Contact Author)

George Mason University

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