Signaling with reform: How the threat of corruption prevents informed policymaking

(with Ian Turner )

Abstract

Lobbying is a potential source of corruption but is also a valuable source of information for policymakers. We analyze a game-theoretic model that shows how the threat of corruption affects the incentives of non-corrupt politicians to enlist the help of lobbyists to make more informed decisions. Politicians face a dilemma because voters cannot always tell whether a politician allows access to lobbyists in order to solicit corruption or to seek information. Thus, a non-corrupt politician may deny access to lobbyists to signal that she is non-corrupt even though doing so impedes her ability to make good policy. This signaling may decrease the welfare of the voters depending on the value of the lost policy information relative to the value of screening out corrupt politicians.

Links

SSRN

PDF

Long Summary

When Bernie Sanders announced his bid for the Democratic Presidential Nomination he immediately took aim at special interest groups.

Enough is enough. This great nation and its government belong to all of the people, and not to a handful of billionaires, their Super-PACs and their lobbyists.

As he has done throughout his career, Sanders tried to position himself in 2016 as a candidate who stood against special interest groups. Sanders did not invent this strategy. Many candidates, past and present, have crafted political brands out of promises to remain free of interest group influence or of the influence of specific special interests. These promises appeal to many voters who hope such candidates will disrupt business as usual, which they see as dominated by the corrupt influence of special interest dollars.

The political science literature on lobbying and special interest influence paints a more complex picture of the effects of interest groups on policymaking. Though vote-buying and corruption are concerning possibilities, there is little evidence that these are common ways that lobbyists influence policy. Instead, the literature emphasizes a couple of other mechanisms that may be more benign:

  • Legislative subsidy. In this view, first articulated in a paper by Hall and Deardorff in 2006, lobbyists influence policymaking by serving as an extension of like-minded legislators’ staffs, relaxing legislators’ time and resource constraints and allowing them to more aggressively pursue the interests they already have in common with the interest group. This type of lobbying has a positive effect of increasing the work capacity of the legislature and a potential downside of distorting the legislative agenda toward spending more time on issues valued by moneyed interests.

  • Information. In this view, which can be attributed in part to Austen-Smith and Wright, lobbyists have information that legislators need in order to make better policy decisions. Interest groups gain influence by presenting that information in a way that paints their preferred policies in a positive light while still improving the accuracy of policymaking through information provision. (In these papers, the effect of information provision is always positive. I have argued here and here and here that this may not always be the case when the information is used to influence legislative voting.)

Ian Turner and I theorized that one downside of the strong anti-lobbyist stance taken by some candidates is that it may commit them to deny access to lobbyists and therefore close them off from more positive interactions with lobbyists that may make them more effective. Why, then, might candidates want to make such commitments? We think one reason is that voters do not know the difference between corrupt and non-corrupt candidates. In our theoretical model, lobbying may have good (informational) or bad (corruption) effects, depending on whether the candidate is corrupt or non-corrupt. Since corrupt candidates would never deny themselves potential rents by denying access to interest groups, committing to do so may serve as a credible signal that a candidate is non-corrupt. Thus, though some anti-lobbyist committments reduce the effectiveness of legislators, they increase the probability of winning the election and help voters distinguish between corrupt and non-corrupt candidates. An example from the paper helps to clarify:

To illustrate our argument, consider a hypothetical election in which banking regulation is a central issue. During the campaign, the candidates can commit themselves to a policy which either allows or denies access to Wall Street interest groups. For instance, some candidates may indicate a need to work with the industry while others may emphasize a belief that the regulatory process is rigged in favor of moneyed interests and promise a closed-door policy toward industry lobbyists. These candidates may even support similar regulations while maintaining different positions toward interest group participation. Now suppose that some proportion of politicians seek office as a means of securing lucrative revolving-door jobs on Wall Street. These politicians will always grant access to interest groups and will ultimately act in the interests of the industry. The problem is that voters cannot tell the difference between politicians who grant access because they are corrupt and those who grant access in search of information that could help them act in the voters’ best interests. Thus, sincere politicians may deny themselves the information needed to make good policy by shutting out interest groups in order to convince voters that they are not corrupt.

With our theoretical model in hand, we can analyze whether anti-lobbyist candidates are good for voter welfare. (We focus on situations where there could be equilibria with or without these types of candidates.) The answer is not immediately obvious since these candidates have two effects for the voters.

  • Positive: Anti-lobbyist candidates help the voter distinguish between corrupt and non-corrupt candidates and select on the basis of non-corruption.

  • Negative: Anti-lobbyist candidates, while better than corrupt candidates, are less effective policymakers than non-corrupt candidates with access to lobbyists.

The answer to our normative question depends on the relative importance of these two effects. When policy uncertainty is very high and candidates are unlikely to be corrupt, the voter would be better off ex ante if candidates did not signal non-corruption by rejecting lobbyists. When policy uncertainty is not very high but corruption is more likely, the voters value selecting non-corrupt types more than arming legislators with better policy information, so anti-lobbyist voters improve voter welfare.