Lobbying Externalities and Competition
53 Pages Posted: 11 Dec 2018 Last revised: 25 Aug 2019
Date Written: June 1, 2019
I show that lobbying generates negative externalities, which affect non-lobbying companies. When a piece of new legislation passes in Congress, non-lobbying companies in aggregate lose $1.9bn in market value. I obtain this result using a novel dataset combining comprehensive information on corporate lobbying activity with congressional activity on bills. To explain why negatively affected companies do not lobby, I identify two frictions that hinder them. First, non-lobbying companies do not represent enough voting power to support politicians in the elections. Second, trade associations, which could represent their collective interests, are captured by companies that lobby individually. I demonstrate this mechanism using unique hand-collected data on membership in the main trade associations. These findings have important policy implications: they highlight the economic mechanisms which could be targeted by policies regulating corporate lobbying.
Keywords: Corporate Lobbying, Competition, Economic Regulation
JEL Classification: D72, P16, L41, G14, G38
Suggested Citation: Suggested Citation