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Social Choice and Welfare

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11-09-2019 | Original Paper

Centralized policymaking and informational lobbying

Author: Cheng Li

Published in: Social Choice and Welfare | Issue 4/2020

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Abstract

This paper compares centralized and decentralized policymaking in a game theoretic model of informational lobbying and political contributions. In the model, an interest group first produces verifiable evidence about the welfare effects of its preferred policy and then engages in monetary lobbying. The analysis highlights a new channel through which centralized policymaking affects social welfare: centralization can incentivize the interest group to produce less informative evidence, leading to less informed policy decisions and lower social welfare. This channel is most relevant when the interest group is only willing to pay small political contributions to policymakers. When the interest group’s willingness to pay becomes larger, centralized policymaking affects social welfare by changing the degree of political capture.

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This assumption is not necessary for the results. In an online Appendix, I show how the qualitative results continue to hold when \(\theta _B > 2 \theta _A\).

Section 7.1 shows that the main results of the paper continue to hold when IG first privately observes a signal realization and then sends policymakers a message about the signal realization.

IG’s evidence production strategy has many interpretations. For example, it may represent IG’s methodology to produce policy relevant information, such as the size of a poll of public opinion on the reform. The larger the poll, the more informative the poll results. It may also represent the expertise that IG acquires in the evidence production process. For example, research results from independent research institutions provide more objective and more informative evidence than reports drafted by IG itself.

As in Lima et al. (2017), I exclude the payoffs of IG and policymakers from the welfare function because they are a negligible fraction of the society.

Section 7.2 considers an alternative model in which IG can design different signals for the two local policymakers. In that setting, the local policymakers may have different posterior beliefs.

I assume that \(PM_i\) implements the reform when she is indifferent between the reform and the status quo.

The concave closure (i.e. concavification) of function f is the smallest concave function that is everywhere no less than f.

In Case 3, IG has multiple optimal signals when \(q_0 \ge \theta _A\). When \(q_0 \ge \theta _B\), IG is indifferent between signals that always generate posterior beliefs no less than \(\theta _B\). When \(\theta _A \le q_0 < \theta _B\), IG is indifferent between signals that generates posterior beliefs between \(\theta _A\) and \(\theta _B\).

The IG has multiple optimal signals in Case 4. When \(q_0 \ge \theta _B\), IG is indifferent between signals that always generate posterior beliefs no less than \(\theta _B\). When \(\theta _A \le q_0 < \theta _B\), IG is indifferent between signals that generates posterior beliefs between \(\theta _A\) and \(\theta _B\). When \(q_0 < \theta _A\), IG is indifferent between signals that always generates posterior beliefs smaller than \(\theta _A\).

When \(q_0 \ge \ (\theta _A+\theta _B)/2\), any signal that always generates posterior beliefs no less than \((\theta _A + \theta _B)/2\) is optimal for IG because it gives IG the highest payoff 2v. When \(q_0 < (\theta _A + \theta _B)/2\) and \(v/ \lambda \ge (\theta _A + \theta _B)/2\), signals that always generate posterior beliefs lower than \((\theta _A + \theta _B)/2\) are optimal for IG because they result in \(Eu_{IG}\) that equals its concave closure.

According to the survey by Baumgartner et al. (2009), \(45.8\%\) of the lobbying groups influence policy by disseminating external research to policymakers.

For example, Barnoya and Glantz (2006) document that many research results on the health effects of smoking are presented in international conferences and published in academic journals.

According to Baumgartner et al. (2009), \(61.3\%\) of the lobbying groups influence policymaking by disseminating in-house research to policymakers.

In general, the equilibrium outcome of a Bayesian persuasion game remains the same if the sender is allowed to conceal information, so long as the information the sender does disclose is verifiable. Kamenica and Gentzkow (2011) formally prove this result in the online Appendix of their paper.

For example, as mentioned in Sect. 7.1, studies funded by tobacco firms are often published in academic journals and presented in conferences and thus observed by the public (Barnoya and Glantz 2006).

As in the body of the paper, I say \(PM_i\) is captured by political contributions if she implements the reform when her posterior belief is lower than her threshold of doubt \(\theta _i\). In the alternative model, \(PM_i\) is captured by political contributions under decentralization when \(q_0 < \theta _i\) and \(v/ \lambda \ge \theta _i\).

For certain prior beliefs, IG has multiple optimal signals. To simplify the comparison of signal informativeness, I assume that IG chooses the least informative optimal signal in equilibrium. This assumption is irrelevant for the comparison of welfare because when IG has multiple optimal signals, all the optimal signals induce identical equilibrium outcomes.

I formally prove this in an online Appendix. I would like to thank an associate editor for making this point.

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Title: Centralized policymaking and informational lobbying
Author: Cheng Li
Publication date: 11-09-2019
Publisher: Springer Berlin Heidelberg
Published in: Social Choice and Welfare / Issue 4/2020
Print ISSN: 0176-1714
Electronic ISSN: 1432-217X
DOI: https://doi.org/10.1007/s00355-019-01218-1

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