TY  - JOUR
AU  - Drazen,Allan
AU  - Limão,Nuno
AU  - Stratman,Thomas
TI  - Political Contribution Caps and Lobby Formation: Theory and Evidence
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10928
PY  - 2004
Y2  - November 2004
UR  - http://www.nber.org/papers/w10928
L1  - http://www.nber.org/papers/w10928.pdf
N1  - Author contact info:
Allan Drazen
Department of Economics
University of Maryland
College Park, MD 20742
Tel: 301/405-3477
Fax: 301/405-7835
E-Mail: drazen@econ.umd.edu

Nuno Limao
Department of Economics
University of Maryland
3105 Tydings Hall
College Park, MD 20742
Tel: 301/405-7842
Fax: 301/405-3542
E-Mail: limao@econ.umd.edu
AB  - The perceived importance of "special interest group" money in election campaigns motivates widespread use of caps on allowable contributions. We present a bargaining model in which putting a cap that is not too stringent on the size of the contribution a lobby can make improves its bargaining position relative to the politician, thus increasing the payoff from lobbying. Such a cap will therefore increase the equilibrium number of lobbies when lobby formation is endogenous. Caps may then also increase total contributions from all lobbies, increase politically motivated government spending, and lower social welfare. We present empirical evidence from U.S. states consistent with the predictions of the model. We find a positive effect on the number of PACs formed from enacting laws constraining PAC contributions. Moreover, the estimated effect is nonlinear, as predicted by the theoretical model. Very stringent caps reduce the number of PACs, but as the cap increases above a threshold level, the effect becomes positive. Contribution caps in the majority of US states are above this threshold.
ER  -