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The Tullock paradox: why is there so little lobbying?
...the economist Thomas Stratmann has estimated that just $192,000 of contributions from the American sugar industry in 1985 made the difference between winning and losing a crucial House vote that delivered more than $5 billion of subsidies over the five subsequent years.
That is one example of many. Our government controls trillions, but lobbying expenditures are a small fraction of gdp. One explanation, which Tim cites, is that our government is not for sale. This is true for most major programs, such as social security. Voters have the dominant say.
But how about the details of smaller policies? Why aren't the benefits of those redistributions exhausted by lobbying expenditures? My preferred explanation involves competition. In principle, more than one coalition is capable of winning a political game. If your winning coalition demands too high a bribe from interest groups, you will be undercut by another coalition able to deliver the policy for less. Government is not a unitary agent. This also helps explain, by the way, why democracy is stable rather than wracked by intransitive cycling. If you just write down different voting profiles, it appears any winning coalition can be outdone by another (at least for a multi-dimensional policy space). But if you add differential costs of organization to the mix, and make collecting the votes part of an explicit but imperfectly contestable market, you are much closer to getting a unique or near-unique outcome.
Ideas in this post are drawn from a paper by Roger Congleton and Bob Tollison. Here is a recent paper on the same topic.
Posted by Tyler Cowen on April 4, 2006 at 07:35 AM in Political Science | Permalink
Comments
One answer is simply that politicians are cheap. Another that they are too dumb to
work out what the market will bear.
But then those are bo0th simply cheap shots.
Posted by: Tim Worstall at Apr 4, 2006 8:33:36 AM
Mr. Harford seems convinced that Hershey and many other big users of sugar would gladly pay $192,000 to get out from under the special sugar tax. Is it that clear that they'd be better off if all the candy makers had lower costs? Maybe we could persuade them to embark on a big ad campaign featuring the wonderful folk at ADM?
It'd be great to believe that various checks and balances cause Congress to be for sale only to the tune of $2 billion per 2.5 trillion.... and clearly we are only doing rough math here... but to calculate that as "very roughly 0.1 percent corrupt" seems way, way too generous.
Aren't fundraising dinners full of devices trying to get everyone to throw more dollars in the pot if everyone else will.... and really, how well do these devices work?
While my Congressman "represents" me in Washington in only the roughest fashion.... so to does the governmental affairs office of my favorite candy-maker. Who knows if either one does me more good than harm in any particular year.
Even after we have a Congressman who's bribe menu suggests he was operating in a competitive field, one of the best journalists we have is making a first estimation of the extent to which Congress and the President are for sale on the order of 1 per thousand!
If you have worked in politics you know that some of the strongest of the "checks and balances" Mr. Harford refers to would be the true beliefs about rightful government..... on the part of Congress, their thousands of aids, the administration, and sometimes even those on K Street... But you also know that an estimate of 1 per thousand is way, way off.
Posted by: Dave Meleney at Apr 4, 2006 8:48:57 AM
I think there's one other important factor to be kept in mind, which is that the government is basically zero-sum. For each dollar one interest group wrings out of the government, another interest group will go begging.
Since those lobbying dollars are non-refundable (imagine if lobbyists worked on commission...), in an efficient market for government dollars we would expect successful participants to pay in far less than they eventually get out; they are balanced by all the unsuccessful interests that they beat out for those dollars.
In fact, with risk-averse participants, we should expect the easily-moved parts of the the government budget to be larger than the total lobbying money expended, and far larger than the total lobbying money expended by the winners.
Of course, there's still a big gap remaining. But it should not surprise us that individual winners in the lobbying lottery, like big sugar, paid less for their tickets than they received in prize money.
Posted by: Grant Gould at Apr 4, 2006 8:51:00 AM
Keep in mind that for $1 million contract, the profit for the bidder is likely to be under $50,000. If a company throws 50k at a congresscritter to win a $1 million contract, they come out behind, because of the risks involved.
Compare lobbying/election expenses to the federal budget. There's a vast non-conspiracy there...
Posted by: Nathan Zook at Apr 4, 2006 9:44:23 AM
Isn't what you (and these guys) saying basically what the Chicago school positive political theory types have been saying for years, Becker wrote "A Theory of Competition among Pressure Groups for Political Influence" in 1983. Within Poli-Sci at least I think the Chicago view has found more favor than the Virginia school view.
Posted by: goodness_of_fit at Apr 4, 2006 9:50:31 AM
It seems to me that a big part of what's going on here is that we are pretty effective at preventing people from offering politicians cash bribes. This means that a direct bribe can only take the form of trips and other freebies, which is necessarily small potatoes--a single Congressman can only play so much golf in Scotland. But the fact that the bribe is small relative to the size of government doesn't mean it's harmless; people who can't afford even a golf trip still get no love at all.
Posted by: David J. Balan at Apr 4, 2006 9:59:07 AM
I think the key here is the possibility of exposure, scandal, and subsequent ruin both for the offending politician and for the interests of the constituency that stepped too far over the lobbying/bribery line.
Look at the recent Abramoff scandal. This was, in monetary terms, relatively small potatoes. But it has already ruined a half dozen careers, including the one of the former, all-powerful, house majority leader.
Now imagine if such shenanigans were exposed for the billions that go to farm subsidies or (as sort of happened) the huge profits to be made from energy deregulation.
The bottom line is that while there are billions to be potentially made from lobbying, there is also the risk of losing billions if your group became publicly reviled and achieved persona non-grata in the subsidy game for years (decades?) to come.
The currently dominant approach to lobbying expenditures may in fact be conservative--I'm not enough of a quant wiz to know--but I think that it's less conservative than your analysis would suggest, since you're underweighting the risks of unsuccessfully overagressive lobbying.
Posted by: Thug at Apr 4, 2006 10:07:32 AM
Yet another explanation could be on the costs side. The sugar subsidy may not have a reliable competitor because of the way that Congress divides its work. Thus, the ratio of a couple of hundred thousand to reap $5 billion is based on the notion that you only need to convince a small number of people in the congress. The sugar industry can concentrate its money on the people who will vote and because of the way omnibus appropriations work - the rest of the votes are inconsequential.
The conclusion here, is that the process is not zero sum - as posted above - but multiple sum each with its discrete package of costs and benefits. Agricultural subsidies are a prime example of that kind of differentiation - there is the old joke told about a foreign dignitary visiting the US Department of Agriculture where he encounters one person crying bitterly - when he asked why the man was so upset - he was told "His farmer died."
I am not sure how many of the other posters have had actual lobbying experience (I've done it for 30+ years). A million dollar contract will probably yield considerably more than a $50,000 profit for the firm - unless the firm has tremendous overhead. Influence for a contract lobbyist may involve what some in other fields would consider overhead - but the net to most firms is considerably higher.
The sugar subsidy has all the bad characteristics of a target policy - it benefits a small group of producers immensely at the expense of sound agricultural, trade and even foreign policy.
Posted by: drtaxsacto at Apr 4, 2006 10:24:01 AM
The Becker paper simply assumes away the mechanics of cycling (which after all predates the Virginia school -- cf. Arrow). Tullock suggests how cycling might not be so debilitating as to disallow approximately Beckerian results. There has been more formal work on this as well by Schofield and others.
Posted by: jn at Apr 4, 2006 10:41:13 AM
(Thanks for the clarification drtaxsacto -- a $50k profit on a $1 million contract didn't seem right at all)
My intuition is that the demand for favors is artificially capped by the fact that the expenditures are ostensibly campaign contributions. So this would be closer to the simple "the government is not for sale" than competition among favor-sellers. Also, the marginal dollar that would change a lobby's rank from the Nth to the N-1th largest might be difficult to spend.
Posted by: Jason Ruspini at Apr 4, 2006 10:45:36 AM
This "puzzle" has been addressed in this paper by Kaplan and Chamon.
http://ist-socrates.berkeley.edu/~ekaplan/jmp_final.pdf
Posted by: S. Mukand at Apr 4, 2006 12:26:38 PM
Grant Gould, yes, we should expect the individual winners to pay far less than they receive -- but shouldn't we expect all the players to pay in about as much as the winners receive? That's certainly what Tullock probabilistic rent-seeking model suggests (that is, unless we've just run out of potential rent-seekers, and even then you'd expect it to be at least half). As some of the commenters above (or Harford himself) suggest, you could explain this apparent discrepancy by assuming that laws against bribery and the effect of public opinion constitute a multiplier to the costs of lobbying. Then the sum of all costs of lobbying really might be equal to the sum of the rents, but those costs are primarily non-pecuniary -- which in a sense is another way of saying most of the government isn't for sale in this manner.
Drtaxacto -- if it's simply that any rent-seeker only needs to pay a couple congressmen a small fraction of the value of the rent, why isn't literally everyone a lobbyist? Seriously -- why can't (don't?) I offer my congressman $1000 if he'll add a rider cancelling my school loans?
Posted by: anon at Apr 4, 2006 12:45:47 PM
there's probably a lot of squeekiness in the numbers...also there are more ways than just money to influence politicos. much of what passes as policy is the product of legislative advisory panels. take a closer look at who is on the panels, what industries they represent, what the split of the boards are...sounds sinister? i think this would be a simple undertaking for economic rigor to get the data and crunch the numbers...by these results we would be able to deduce whether or not voters have the dominant say. a good place to start is the FDA advisory panels...thanks!
Posted by: Joe at Apr 4, 2006 1:17:25 PM
If it is true that lobbying losers are paying nearly as much as the winners, that fact makes it harder, not easier, to explain the missing money. The problem is that you have to pay before you know the outcome, and as long as the outcome is in doubt, your previous payments are sunk costs which you should ignore when you compute your next optimal payment.
I therefore like Tyler's competition theory better. However, I think another part of the discrepancy can be explained by considering non-monetary costs and contributions whose total economic value may be greater than the actual dollars spent on lobbying:
-- companies may spend part of their advertising, PR, and charitable dollars to improve their political chances. (Walmart)
-- govt. contractors bear a risk of cost overruns, as well as the cost of "prevailing wage" laws
-- some companies risk getting too closely identified with one party, risking a backlash and punishment from the other party (Halliburton, Exxon). Thus they have to be careful not to give too much too obviously at one time.
-- Votes and volunteer hours are also given in exchange for interest group favors. A lot of the most effective volunteer hours come from unions and from the religious right.
Posted by: DK at Apr 4, 2006 5:30:42 PM
[Why aren't the benefits of those redistributions exhausted by lobbying expenditures? ]
How do you know they aren't? A production function is a pretty bad way to think about industrial production, but a reallly bad way to think about other things people spend their money on.
Posted by: dsquared at Apr 5, 2006 4:04:01 AM
Most politicians are predisposed to help out certain interest groups simply because they reside within their congressional district or state. Moreover, congressman engage on a lot of mutual backscratching (known as logrolling), which creates winning coalitions simultaneously across numerous issues. The money going to congressmen from interest groups aren't a priori bribes, but ex post gifts of appreciation. If they were bribes, then I would agree, they should be much larger. But since they are gifts for something the congressman is predisposed to do anyway, they are going to be relatively small compared to the benefit.
Posted by: Paul at Apr 5, 2006 10:40:51 AM
I wonder if publicly-traded firms giving politicians inside information in lieu of bribes could be a small piece of the puzzle? Members of congress can't currently be prosecuted for using the information, and there is less risk to the firm in passing information versus cash. This doesn't explain ag of course, but maybe it could help explain why ag needs to make more effort to get what they want than some corporations seem to.
Posted by: Pat L at Apr 5, 2006 4:13:37 PM
When there are many ho's on the street corner and all can service johns with no effort, they compete with each other and drive the price down for prostituting themselves.
After all, you don't need all the ho's in the world, just more than 50%
When ho's compete, lobbyists win!
by the way, ho's and johns hate term limits and proportional representation. But they work really well for the taxpayer
Posted by: Alan Brown at Dec 10, 2008 12:37:10 AM
