Follow the Money
57 Pages Posted: 8 Dec 2018
Date Written: November 14, 2018
What is the effect of firm lobbying on risk and expected returns? I develop a game-theoretic asset pricing model in which firms lobby to gain or preserve monopolistic rents. The model has four key predictions. First, differences in expected returns are the equilibrium outcome of the strategic interaction among firms, and returns are higher for firms that lobby more. Second, firms that lobby more exhibit larger return volatility. Third, lobbying is less intense in more competitive industries. Fourth, and finally, firms in these industries tend to lobby in coalitions. Congressional data on lobbying spending support the model’s implications.
Keywords: Lobbying, Expected Returns, Imperfect competition, Strategic interaction
JEL Classification: G12, G32, L10, L22
Suggested Citation: Suggested Citation