Influence by Intimidation: Business Lobbying in the Regulatory Process

Abstract

Interest group influence in the policy process is often assumed to occur through a mechanism of exchange, persuasion, or subsidy. Here, we explore how business groups may also exert influence by intimidating policymakers—a form of persuasion, but one based not on the provision of policy information but of political information. We develop a theory where a business firm lobbies a regulator to communicate political information about its capacity to commit to future influence-seeking activities that would sanction the regulator. The regulator assesses the credibility of this message by evaluating the firm’s commitment to lobbying. Guided by our theory, we present evidence consistent with expectations that intimidation can shape regulatory outcomes to the advantage of certain firms, both through a chilling effect, where lobbying derails nascent regulatory plans, as well as a retreating effect, where opposition to published proposals leads to their withdrawal.

Keywords: Political economy, administrative law, empirical legal studies, government regulation, regulatory agencies, bureaucracy, interest group influence, business lobbying, public policy, rulemaking, information, game theory, signaling, incentives, politics, power

JEL Classification: D72, D73, D78