Political Competition and Lobbying

This project will investigate the outcome of political competition and lobbying. The economic literature treats lobbying by firms either as a rent-seeking phenomenon or as special interest politics. But political competition in a lobbying environment is also characterized by a fundamental two sidedness: Consider politicians which compete for an office. On the one hand, each politician has to provide a political program that attracts enough voters. On the other hand, politicians are often influenced by ca mpaign contributions of firms. Hence, the politicians act in a political market and in a lobbying market. The spill-over between the two markets can take several forms. For example, the willingness-to-pay of lobbyists may depend on the number of voters. T he more voters a politician can get, the more attractive she/he will be for lobbyists, since not funding the winner may turn out to be costly for the lobbyists after the election. A lobbyist's willingness-to-pay may also be decreasing in the number of vot ers since she/he would like to support its favorite candidate particularly in times where the candidate expects few votes only. A spill-over effect from the lobbying market into the political market may be represented by the disutility of voters caused by the political influence of lobbyists. The project will investigate the two sidedness of political competition, by using an Hotelling approach with horizontal (political profile) and vertical (political quality) differentiation. Political quality can be understood as the effectiveness with which the candidate transmits her/his political message to the voters. Two major insights are aimed for. First, should restrictions be placed on campaign contributions, and second how does such caps affect politica l diversity. The economic literature so far does not have an answer to these questions.