Insuring Legislative Wealth Transfers: Theory and Evidence

31 Pages Posted: 23 May 2019 Last revised: 27 Jun 2022

See all articles by Bryan Cutsinger

Bryan Cutsinger

Angelo State University - Accounting, Economics and Finance Department; Texas Tech University - Free Market Institute

Alexander Marsella

West Virginia University - Department of Economics

Yang Zhou

University of North Texas - Department of Economics

Date Written: April 20, 2019

Abstract

The interest group theory of government assumes that the state’s primary purpose is to facilitate wealth transfers between special interests. The values of the transfers depend on their durability, which can be increased by mechanisms that raise the cost of repealing them. Nonetheless, such mechanisms cannot function perfectly, and, thus, uncertainty surrounding their durability remains. We argue that the uncertainty could be mitigated by an insurance mechanism that compensates interest groups if other durability-enhancing mechanisms fail. To illustrate how such an insurance mechanism works, we rely on the 2014 settlements between the Department of Justice and Bank of America and Citigroup, respectively, which required both banks to donate to housing-counseling organizations whose funding Congress had reduced three years earlier.

Keywords: Durability, Interest Groups, Political Exchange

JEL Classification: D72, H11, P16

Suggested Citation

Cutsinger, Bryan and Marsella, Alexander and Zhou, Yang, Insuring Legislative Wealth Transfers: Theory and Evidence (April 20, 2019). Public Choice, forthcoming, Free Market Institute Research Paper No. 3375405, Available at SSRN: https://ssrn.com/abstract=3375405 or http://dx.doi.org/10.2139/ssrn.3375405

Bryan Cutsinger (Contact Author)

Angelo State University - Accounting, Economics and Finance Department ( email )

San Angelo, TX 76909
United States

Texas Tech University - Free Market Institute

Box 45059
Lubbock, TX 79409-5059
United States

Alexander Marsella

West Virginia University - Department of Economics ( email )

Morgantown, WV 26506
United States

Yang Zhou

University of North Texas - Department of Economics ( email )

1155 Union Circle #311457
Denton, TX Texas 76203-5017
United States

HOME PAGE: http://economics.unt.edu/people/yang-zhou

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