A Theory of Small Campaign Contributions

45 Pages Posted: 20 Mar 2018

See all articles by Laurent Bouton

Laurent Bouton

Georgetown University - Department of Economics

Micael Castanheira

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); Centre for Economic Policy Research (CEPR)

Allan Drazen

University of Maryland - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: March 2018

Abstract

We propose a formal model of small campaign contributions driven by an electoral motive, that is, by the possible influence of contributions on the outcome of an election. Electoral considerations produce strategic interactions among contributors, even when each donor takes as given the actions of other donors. These interactions induce patterns of individual contributions that are in line with empirical findings in the literature. For instance, equilibrium contributions increase when the support for the two candidates is more equal—a “closeness effect”—and relative contributions for the advantaged party are smaller than their underlying advantage—an “underdog effect.” We then study the impact of different forms of campaign finance laws. We show that caps affect small donors even if they are not directly capped, and that it may be optimal to combine caps with a progressive tax on contributions. We also indicate why our results may have implications for empirical studies of campaign contributions.

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Suggested Citation

Bouton, Laurent and Castanheira, Micael and Drazen, Allan, A Theory of Small Campaign Contributions (March 2018). NBER Working Paper No. w24413. Available at SSRN: https://ssrn.com/abstract=3143338

Laurent Bouton (Contact Author)

Georgetown University - Department of Economics ( email )

Washington, DC 20057
United States

Micael Castanheira

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium
+32 2 650 4467 (Phone)
+32 2 650 3369 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Allan Drazen

University of Maryland - Department of Economics ( email )

College Park, MD 20742-1815
United States
301-405-3477 (Phone)
301-405-7835 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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