Merchants of Reputation: Privatization Under Elites' Outside Lobbying
56 Pages Posted:
Date Written: July 22, 2020
An economic elite wants to buy a public asset, whose fate is determined by an incumbent politician who can be of high or low competence. The elite endogenously chooses a price for the asset, after which the incumbent decides whether to take it or not. In my framework, privatizing the asset would increase the budget that the incumbent handles today and, thereby, the amount of voter learning about his underlying ability: his valuation of this effect can be positive (he craves information revelation) or negative (he is information averse). Everything else being equal, both the direction and the magnitude of this valuation determines the prices at which he would accept to sell the public asset —which I call the ``intensive margin". This paper uncovers how this intensive margin creates an incentive for the elite to leverage their offer by committing to an outside lobbying strategy ex-ante, so as to get the asset as cheaply as possible. In my framework, outside lobbying involves the elite's use of their media to persuade voters that the incumbent is incompetent. The elite chooses whether to attack him before they make an offer, or to make him an offer that carries the threat of a persuasion attempt if he refuses to sell. I show that the elite's optimal strategies take two broad forms on the equilibrium path: if the incumbent craves for information revelation, then the elite employs attacks; and if he is information averse, then the elite employs threats. Finally, this paper highlights that even in the absence of traditionally studied channels of influence (such as bribery), the elite can still cause non-trivial distortions in the decisions that office-holders take.
Keywords: Bayesian persuasion, Elections, Elites, Outside Lobbying, Privatization
JEL Classification: D70, D72, D74, D80, D83
Suggested Citation: Suggested Citation