The Iceberg Theory of Campaign Contributions: Political Threats and Interest Group Behavior

51 Pages Posted: 6 Apr 2007  

Ethan Kaplan

Stockholm University - Institute for International Economic Studies (IIES)

Date Written: April 2007

Abstract

This paper presents a model of campaign contributions where a special interest group can condition its contributions not only on the receiving candidate's support but also on that of her opponent. This allows the interest group to obtain support both from contributions as well as from the implicit threat of contributing to the opponent. These out-of-equilibrium contributions can help explain the "missing money" puzzle in the empirical literature. Our framework contradicts standard models in predicting that interest groups do not give to both sides of a same race. It also predicts that stronger candidates get more money from special interest groups primarily because more contributors give to lop-sided winners, not because more money is given per contribution. Both of these predictions are strongly supported in FEC data for U.S. House Elections from 1984-2004. Our theory also predicts that special interest groups will mainly target lop-sided winners whereas general (partisan) interest groups will contribute mainly to candidates in close races. This is also verified empirically. Finally, our framework implies that stricter campaign finance rules will always lower special interest influence but may lead to an increase in equilibrium contributions, making the latter a poor measure of effectiveness.

Keywords: Campaign contributions, multilateral contracting, Lobbying, US elections

JEL Classification: D72, P16

Suggested Citation

Kaplan, Ethan, The Iceberg Theory of Campaign Contributions: Political Threats and Interest Group Behavior (April 2007). Available at SSRN: https://ssrn.com/abstract=978508 or http://dx.doi.org/10.2139/ssrn.978508

Ethan Daniel Kaplan (Contact Author)

Stockholm University - Institute for International Economic Studies (IIES) ( email )

Stockholm, SE-10691
Sweden

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