Media Capture Through Favor Exchange

52 Pages Posted: 2 Mar 2017

See all articles by Adam Szeidl

Adam Szeidl

Central European University

Ferenc Szucs

University of California, Berkeley

Multiple version iconThere are 2 versions of this paper

Date Written: February 2017

Abstract

We uncover the full circle of favors leading to media capture in Hungary. We first document favors from politicians to the media. Exploiting changes in government and media ownership, we show that under right-wing - but not left-wing - governments, state-owned firms heavily tilted advertising to connected newspapers and billboards, relative to the advertising composition of private firms or circulation shares. We then document two forms of media bias as return favors. We show that the connected newspaper had lower corruption coverage than the opposition newspaper before, but not after, a public breakdown in its relationship to the politician which also lead to the termination of advertising favors. And we show that billboard companies, after they became right-connected, selectively hosted the political campaigns of the right-wing party. Using a structural model we infer the welfare cost of advertising misallocation to be a third of the advertising budget, and estimate that each dollar spent on media capture cost 1.9 dollars to taxpayers. Our results suggest that the mechanism underlying media capture was a misallocation-inducing relational contract.

Keywords: advertising, favor exchange, media bias, media capture, Misallocation, relational contract

JEL Classification: D61, D72, D73, L82, P16

Suggested Citation

Szeidl, Adam and Szucs, Ferenc, Media Capture Through Favor Exchange (February 2017). CEPR Discussion Paper No. DP11875, Available at SSRN: https://ssrn.com/abstract=2924736

Adam Szeidl (Contact Author)

Central European University ( email )

Nador u. 9.
Budapest H-1051
Hungary
+36 1 327 3000 (Phone)
+36 1 327 3232 (Fax)

Ferenc Szucs

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

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