Greed as a Source of Polarization

25 Pages Posted: 11 Jan 2018

See all articles by Igor Livshits

Igor Livshits

Federal Reserve Bank of Philadelphia; University of Western Ontario - Department of Economics

Mark L. J. Wright

Federal Reserve Banks - Federal Reserve Bank of Minneapolis

Date Written: 2017-12-28

Abstract

The political process in the United States appears to be highly polarized: evidence from voting patterns finds that the political positions of legislators have diverged substantially, while the largest campaign contributions come from the most extreme lobby groups and are directed to the most extreme candidates. Is the rise in campaign contributions the cause of the growing polarity of political views? In this paper, we show that, in standard models of lobbying and electoral competition, a free-rider problem amongst potential contributors leads naturally to a divergence in campaign contributors without any divergence in candidates' policy positions. However, we go on to show that a modest departure from standard assumptions | allowing candidates to directly value campaign contributions (because of \ego rents" or because lax auditing allows them to misappropriate some of these funds) | delivers the ability of campaign contributions to cause policy divergence.

Keywords: Polarization, Campaign Contributions, Agendas

JEL Classification: D72, H41

Suggested Citation

Livshits, Igor and Wright, Mark L.J., Greed as a Source of Polarization (2017-12-28). FRB of Philadelphia Working Paper No. 18-1. Available at SSRN: https://ssrn.com/abstract=3099427 or http://dx.doi.org/https://doi.org/10.21799/frbp.wp.2018.01

Igor Livshits (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

University of Western Ontario - Department of Economics ( email )

London, Ontario N6A 5B8
Canada

Mark L.J. Wright

Federal Reserve Banks - Federal Reserve Bank of Minneapolis ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States

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