Policy-Advising Competition and Endogenous Lobbies

Abstract

We present a general model of Bertrand competition between experts in a policy-advising market. A policy-maker can hire one of the experts or acquire information himself. We first characterize equilibria and show that an expert is never hired under centralization under a weak condition on the uncertainty about the environment. Second, competition reduces the costs of advice and may even cause an expert previously hired at a positive price to then engage in lobbying. Finally, hiring (competition from) a good expert may decrease social welfare if the policy issue is narrow and mainly concerns the policy-maker’s own voters.

Keywords: Policy advice, political influence, lobbying, delegation, private information, Bertrand competition

JEL Classification: D72, D78, D83, D82, C72