Structural power, information asymmetry and public policy: A signaling model of business lobbying in democratic capitalism

This paper analyzes the conditions that lead to the political power position of business by developing a signaling model of corporate lobbying in democratic capitalist societies. Abandoning the traditional dichotomy of structural economic determinants versus business’ political action, the model predicts under which conditions elected political decisionmakers modify their policy pledges to accommodate business’ political preferences, and when they take their chances and override business’ lobbying messages. Our results show that the structural power of business over public policy is contingent on three variables: the relative size of the reputation constraints of business in relation to the costs of lobbying, the ratio of the policymaker’s reputation constraints from pre-election policy commitments to the electoral costs from adverse economic effects, and the likelihood that the policy in question has negative electoral consequences on the side of the policymaker. The model is evaluated in the context of qualitative data from case studies of business lobbying on tax reform and environmental and financial services regulation in Britain and Germany.